<PAGE>
SEI INSTITUTIONAL INVESTMENTS TRUST
SEPTEMBER 30, 1997
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LARGE CAP FUND
SMALL CAP FUND
CORE FIXED INCOME FUND
HIGH YIELD BOND FUND
INTERNATIONAL FIXED INCOME FUND
EMERGING MARKETS EQUITY FUND
INTERNATIONAL EQUITY FUND
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This Prospectus concisely sets forth information about the above-referenced
funds that an investor needs to know before investing. Please read this
Prospectus carefully, and keep it on file for future reference.
A Statement of Additional Information dated September 30, 1997 has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge by writing the distributor, SEI Investments
Distribution Co., Oaks, Pennsylvania 19456, or by calling 1-800-342-5734. The
Statement of Additional Information is incorporated by reference into this
Prospectus.
SEI Institutional Investments Trust ("SIIT" or the "Trust") is an open-end
management investment company that offers certain institutions with investable
pools of assets that have signed an Investment Management Agreement with SEI
Investments Management Corporation a convenient means of investing in
professionally managed diversified and non-diversified portfolios of securities.
THE HIGH YIELD BOND FUND INVESTS PRIMARILY, AND MAY INVEST ALL OF ITS ASSETS, IN
LOWER RATED BONDS, COMMONLY REFERRED TO AS "JUNK BONDS." THESE SECURITIES ARE
SPECULATIVE AND ARE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST
THAN ARE INVESTMENTS IN HIGHER RATED BONDS. BECAUSE INVESTMENT IN SUCH
SECURITIES ENTAILS GREATER RISKS, INCLUDING RISK OF DEFAULT, AN INVESTMENT IN
THE HIGH YIELD BOND FUND SHOULD NOT CONSTITUTE A COMPLETE INVESTMENT PROGRAM AND
MAY NOT BE APPROPRIATE FOR ALL INVESTORS. INVESTORS SHOULD CAREFULLY CONSIDER
THE RISKS POSED BY AN INVESTMENT IN THE HIGH YIELD BOND FUND BEFORE INVESTING.
SEE "INVESTMENT OBJECTIVES AND POLICIES," "GENERAL INVESTMENT POLICIES AND RISK
FACTORS -- RISK FACTORS RELATING TO INVESTING IN LOWER RATED SECURITIES" AND THE
"APPENDIX."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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TABLE OF CONTENTS
_________________________________________________________________
<TABLE>
<S> <C>
Annual Operating Expenses........................ 3
Financial Highlights............................. 4
The Trust........................................ 5
Eligible Investors............................... 5
General Management of the Funds.................. 5
The Money Managers............................... 8
Investment Objectives and Policies............... 17
General Investment Policies and Risk Factors..... 22
Investment Limitations........................... 25
Purchase and Redemption of Shares................ 26
Performance...................................... 28
Taxes............................................ 28
General Information.............................. 29
Description of Permitted Investments and Risk
Factors......................................... 32
Appendix......................................... A-1
</TABLE>
2
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ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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<TABLE>
<CAPTION>
EMERGING
CORE FIXED HIGH YIELD INTERNATIONAL MARKETS INTERNATIONAL
LARGE CAP SMALL CAP INCOME BOND FIXED INCOME EQUITY EQUITY
FUND FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management/Administration Fees
(AFTER FEE WAIVERS) (1)(2) .26% .51% .14% .38% .34% .94% .33%
Other Expenses (3) .08% .09% .07% .09% .27% .46% .25%
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Total Fund Operating Expenses (AFTER
FEE WAIVERS) (4) .34% .60% .21% .47% .61% 1.40% .58%
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</TABLE>
(1) EACH SHAREHOLDER MUST ALSO ENTER INTO AN INVESTMENT MANAGEMENT AGREEMENT
WITH SEI INVESTMENTS MANAGEMENT CORPORATION ("SIMC") FOR INVESTMENT
STRATEGIES AND PROGRAMS AND ASSET ALLOCATION SERVICES, AND PAY AN ANNUAL FEE
THEREUNDER CALCULATED AS A SPECIFIED PERCENTAGE OF THE SHAREHOLDER'S ASSETS
MANAGED BY SIMC.
(2) SIMC AND SEI FUND MANAGEMENT ("SEI MANAGEMENT") HAVE AGREED TO WAIVE, ON A
VOLUNTARY BASIS, A PORTION OF THEIR FEES, AND THE MANAGEMENT/ ADMINISTRATION
FEES SHOWN REFLECT THESE VOLUNTARY WAIVERS. EACH OF SIMC AND SEI MANAGEMENT
RESERVES THE RIGHT TO TERMINATE ITS WAIVER AT ANY TIME IN ITS SOLE
DISCRETION. ABSENT SUCH FEE WAIVERS, MANAGEMENT/ADMINISTRATION FEES WOULD
BE: LARGE CAP FUND, .40% AND .05%, RESPECTIVELY; SMALL CAP FUND, .65% AND
.05%, RESPECTIVELY; CORE FIXED INCOME FUND, .30% AND .05%, RESPECTIVELY;
HIGH YIELD BOND FUND, .49% AND .05%, RESPECTIVELY; INTERNATIONAL FIXED
INCOME FUND, .45% AND .05%, RESPECTIVELY; EMERGING MARKETS EQUITY FUND,
1.05% AND .05%, RESPECTIVELY; AND INTERNATIONAL EQUITY FUND, .51% AND .05%,
RESPECTIVELY.
(3) THE HIGH YIELD BOND, INTERNATIONAL FIXED INCOME AND EMERGING MARKETS EQUITY
FUNDS HAD NOT COMMENCED OPERATIONS AS OF MAY 31, 1997. "OTHER EXPENSES" FOR
THESE FUNDS ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
(4) EACH OF SIMC AND SEI MANAGMENT RESERVES THE RIGHT TO TERMINATE ITS VOLUNTARY
WAIVER AT ANY TIME IN ITS SOLE DISCRETION. ABSENT THE FEE WAIVERS DESCRIBED
ABOVE, TOTAL OPERATING EXPENSES WOULD BE: LARGE CAP FUND, .53%, SMALL CAP
FUND, .79%, CORE FIXED INCOME FUND, .42%, HIGH YIELD BOND FUND, .63%,
INTERNATIONAL FIXED INCOME FUND, .77%, EMERGING MARKETS EQUITY FUND, 1.56%,
AND INTERNATIONAL EQUITY FUND, .81%.
EXAMPLE
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<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS.
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<S> <C> <C> <C>
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
Large Cap Fund $ 3 $ 11 $ 19
Small Cap Fund $ 6 $ 19 $ 33
Core Fixed Income Fund $ 2 $ 7 $ 12
High Yield Bond Fund $ 5 $ 15 --
International Fixed Income Fund $ 6 $ 20 --
Emerging Markets Equity Fund $ 14 $ 44 --
International Equity Fund $ 6 $ 19 $ 32
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<CAPTION>
10 YRS.
-----------
<S> <C>
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
Large Cap Fund $ 43
Small Cap Fund $ 75
Core Fixed Income Fund $ 27
High Yield Bond Fund --
International Fixed Income Fund --
Emerging Markets Equity Fund --
International Equity Fund $ 73
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</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE PURPOSE
OF THE EXPENSE TABLE AND EXAMPLE IS TO ASSIST THE INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT MAY BE DIRECTLY OR INDIRECTLY BORNE BY INVESTORS
IN THE FUNDS. ADDITIONAL INFORMATION MAY BE FOUND UNDER "GENERAL MANAGEMENT OF
THE FUNDS" AND "THE MONEY MANAGERS."
3
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FINANCIAL HIGHLIGHTS
______________________________________________________________
The following information has been derived from the financial statements audited
by Coopers & Lybrand L.L.P., the Trust's independent accountants, as indicated
in their report dated July 15, 1997 on the Trust's financial statements as of
May 31, 1997, which are incorporated by reference into the Trust's Statement of
Additional Information. The Trust's financial statements and additional
performance information are set forth in the 1997 Annual Report to Shareholders,
which is available upon request and without charge by calling 1-800-342-5734.
This table should be read in conjunction with the Trust's financial statements
and notes thereto. The High Yield Bond, International Fixed Income and Emerging
Markets Equity Funds had not commenced operations as of the date of this
Prospectus.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
DISTRIBUTIONS
NET ASSET NET REALIZED DISTRIBUTIONS FROM NET ASSET
VALUE NET AND UNREALIZED FROM NET REALIZED VALUE
BEGINNING INVESTMENT GAINS ON INVESTMENT CAPITAL END OF TOTAL
OF PERIOD INCOME SECURITIES INCOME GAINS PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
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LARGE CAP FUND(1)
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1997 $ 10.00 $0.17 $ 2.63 $(0.14) $ -- $ 12.66 28.22%
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SMALL CAP FUND(1)
------------------------------------------------
1997 $ 10.00 $0.06 $ 0.85 $(0.05) $ -- $ 10.86 9.18%
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CORE FIXED INCOME FUND(1)
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1997 $ 10.00 $0.64 $ 0.17 $(0.64) $(0.04) $ 10.13 8.28%
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INTERNATIONAL EQUITY FUND(1)
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1997 $ 10.00 $0.14 $ 0.61 $(0.05) $(0.01) $ 10.69 7.56%
<CAPTION>
RATIO OF
RATIO OF INVESTMENT TO AVERAGE TO AVERAGE
NET ASSETS EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO AVERAGE
END OF TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
PERIOD (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE+
<S> <C> <C> <C> <C> <C> <C> <C>
- ----- ------------------------------------------------------------------------------------------
----------------------------------------
LARGE CAP FUND(1)
----------------------------------------
1997 $ 438,818 0.34% 1.65% 0.53% 1.46% 71% $ 0.049
----------------------------------------
SMALL CAP FUND(1)
----------------------------------------
1997 $ 123,941 0.60% 0.70% 0.79% 0.51% 163% $ 0.052
----------------------------------------
CORE FIXED INCOME FUND(1)
----------------------------------------
1997 $ 349,304 0.21% 6.60% 0.42% 6.39% 194% n/a
----------------------------------------
INTERNATIONAL EQUITY FUND(1)
----------------------------------------
1997 $ 384,663 0.63% 1.73% 0.82% 1.54% 120% $ 0.017
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
+ AVERAGE COMMISSION RATE PAID PER SHARE FOR EQUITY SECURITY PURCHASES AND
SALES DURING THE PERIOD. GENERALLY, NON-U.S. COMMISSIONS ARE LOWER THAN U.S.
COMMISSIONS WHEN EXPRESSED AS CENTS PER SHARE, BUT HIGHER WHEN EXPRESSED AS
A PERCENTAGE OF TRANSACTIONS BECAUSE OF THE LOWER PER-SHARE PRICES OF MANY
NON-U.S. SECURITIES.
(1) THE FUNDS COMMENCED OPERATIONS ON JUNE 14, 1996. ALL RATIOS EXCEPT TOTAL
RETURN HAVE BEEN ANNUALIZED.
4
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THE TRUST
__________________________________________________________________________
SEI INSTITUTIONAL INVESTMENTS TRUST ("SIIT" or the "Trust") is an open-end
management investment company, organized as a Massachusetts business trust under
a Declaration of Trust dated March 1, 1995. The Declaration of Trust permits the
Trust to offer separate series ("funds") of units of beneficial interest
("shares") and different classes of each fund. Currently, the Trust does not
intend to issue additional classes of shares.
This Prospectus 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"). All of these Funds are diversified funds except for the International
Fixed Income Fund, which is a non-diversified fund. Additional information
pertaining to the Trust may be obtained by writing SEI Investments Distribution,
Co., Oaks, Pennsylvania 19456, or by calling 1-800-342-5734.
ELIGIBLE INVESTORS
_________________________________________________________________
Eligible investors are principally institutions that have
investable pools of assets, including defined benefit
plans, defined contribution plans, health care defined
benefit plans and board-designated funds, insurance
operating funds, foundations, endowments, public plans and
Taft-Hartley plans and have entered into an Investment
Management Agreement (the "Agreement") with SEI Investments
Management Corporation ("SIMC")(collectively, "Eligible
Investors").
Pursuant to the Agreement, SIMC will consult with
each Eligible Investor to define its investment objectives,
desired returns and tolerance for risk, and to develop a
plan for the allocation of assets among different asset
classes. The Agreement sets forth the fee to be paid to
SIMC, which is ordinarily expressed as a percentage of the
Eligible Investor's assets managed by SIMC. This fee, which
is negotiated by the Eligible Investor and SIMC, may
include a performance based fee or a fixed-dollar fee for
certain specified services. Either the Eligible Investor or
SIMC may terminate the Agreement upon written notice as
provided in the Agreement.
GENERAL MANAGEMENT OF
THE FUNDS ______________________________________________________________________
SIMC (the "Manager") is a wholly-owned subsidiary of SEI
Investments Company ("SEI Investments"), a financial
services company. The principal business address of SIMC
and SEI Investments is Oaks, Pennsylvania, 19456. SEI
Investments was founded in 1968, and is a leading provider
of investment solutions to banks, institutional investors,
investment advisers and insurance companies. Affiliates of
SIMC have provided consulting advice to institutional
investors for more than 20 years, including advice
regarding selection and evaluation of money managers. SIMC
currently serves as manager to more than 43 investment
companies, including more than 325 funds, with more than
$93.9 billion in assets as of May 31, 1997.
SIMC is the investment Manager for each of the Funds,
and operates as a "manager of managers." As Manager, SIMC
oversees the investment advisory services
5
<PAGE>
provided to the Funds and manages the cash portion of the
Funds' assets. Pursuant to separate sub-advisory agreements
with SIMC, and under the supervision of the Manager and the
Board of Trustees, a number of sub-advisers (the "Money
Managers") are responsible for the day-to-day investment
management of all or a discrete portion of the assets of
the Funds. Money Managers are selected for the Funds based
primarily upon the research and recommendations of SIMC,
which evaluates quantitatively and qualitatively a Money
Manager's skills and investment results in managing assets
for specific asset classes, investment styles and
strategies.
Subject to Board review, SIMC allocates and, when
appropriate, reallocates the Funds' assets among Money
Managers, monitors and evaluates Money Manager performance,
and oversees Money Manager compliance with the Funds'
investment objectives, policies and restrictions. SIMC HAS
ULTIMATE RESPONSIBILITY FOR THE INVESTMENT PERFORMANCE OF
THE FUNDS DUE TO ITS RESPONSIBILITY TO OVERSEE MONEY
MANAGERS AND RECOMMEND THEIR HIRING, TERMINATION AND
REPLACEMENT.
SIMC and the Trust have obtained an exemptive order
from the Securities and Exchange Commission (the "SEC")
that permits SIMC, with the approval of the Trust's Board
of Trustees, to retain Money Managers unaffiliated with
SIMC for the Funds without submitting the Money Manager
agreements to a vote of the Fund's shareholders. The
exemptive relief permits SIMC to disclose only the
aggregate amount payable by SIMC to the Money Managers
under all such Money Manager agreements for each Fund. The
Funds will notify shareholders in the event of any addition
or change in the identity of its Money Managers.
For its management services, SIMC is entitled to a
fee, which is calculated daily and paid monthly, at the
following annual rates (shown as a percentage of the
average daily net assets of each Fund): Large Cap Fund,
.40%; Small Cap Fund, .65%; Core Fixed Income Fund, .30%;
High Yield Bond Fund, .49%; International Fixed Income
Fund, .45%; Emerging Markets Equity Fund, 1.05%; and
International Equity Fund, .51%. SIMC pays the Money
Managers a fee out of its advisory fee, which fee is based
on a percentage of the average monthly market value of the
assets managed by each Money Manager.
For the fiscal year ended May 31, 1997, the Large
Cap, Small Cap, Core Fixed Income and International Equity
Funds paid management fees to SIMC, after fee waivers, of
.24%, .49%, .12% and .35%, respectively, of their average
daily net assets. The High Yield Bond, International Fixed
Income and Emerging Markets Equity Funds had not commenced
operations as of May 31, 1997.
SEI Fund Management ("SEI Management" or the
"Administrator") provides the Trust with overall
administrative services, regulatory reporting, all
necessary office space, equipment, personnel and
facilities, and acts as dividend disbursing agent. SEI
Management also serves as transfer agent (the "Transfer
Agent") for the Funds. For these administrative services,
SEI Management is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of .05% of the
average daily net assets of each Fund.
6
<PAGE>
SIMC and SEI Management have agreed, on a voluntary basis,
to waive a portion of their Management/Administration Fees
and/or reimburse Other Expenses to the extent necessary to
keep Total Operating Expenses from exceeding current
levels. The Total Operating Expenses reflect current fee
waivers.
For the fiscal year ended May 31, 1997, the Large
Cap, Small Cap, Core Fixed Income and International Equity
Funds paid administrative fees, after fee waivers, of .02%,
.02%, .02% and .03%, respectively, of their average daily
net assets. The High Yield Bond, International Fixed Income
and Emerging Markets Equity Funds had not commenced
operations as of May 31, 1997.
SEI Investments Distribution Co. (The "Distributor")
serves as each Fund's distributor pursuant to a
distribution agreement (the "Distribution Agreement") with
the Trust. No compensation is paid to the Distributor under
the Distribution Agreement for distribution services for
the shares of any Fund.
The Fund may execute brokerage or other agency
transactions through the Distributor, for which the
Distributor may receive compensation.
The Distributor may, from time to time and at its own
expense, provide promotional incentives, in the form of
cash or other compensation, to certain financial
institutions whose representatives have sold or are
expected to sell significant amounts of the Funds' shares.
7
<PAGE>
THE MONEY MANAGERS ____________________________________________________________
The assets of each Fund will be allocated among the Money
Managers listed below. However, SIMC may change the
allocation of a Fund's assets among Money Managers at any
time.
The following table sets forth information about the
Money Managers selected for the Funds by the Boards of
Trustees (as of September 30, 1997).
<TABLE>
<CAPTION>
FUND MONEY MANAGERS
<S> <C>
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Large Cap Alliance Capital Management L.P.
American Express Asset Management Group Inc.
LSV Asset Management
Mellon Equity Associates
Pacific Alliance Capital Management
Provident Investment Counsel, Inc.
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Small Cap 1838 Investment Advisors, L.P.
Boston Partners Asset Management, L.P.
First of America Investment Corporation
Furman Selz Capital Management LLC
LSV Asset Management
Nicholas-Applegate Capital Management
Wall Street Associates
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International Equity Acadian Asset Management, Inc.
Farrell Wako Global Investment Management, Inc.
Lazard London International Investment Management Limited
Seligman Henderson Co.
Yamaichi Capital Management, Inc. and Yamaichi Capital
Management (Singapore) Limited
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Emerging Markets Equity Coronation Asset Management (Proprietary) Limited
Montgomery Asset Management, LLC
Parametric Portfolio Associates
Yamaichi Capital Management, Inc. and Yamaichi Capital
Management (Singapore) Limited
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Core Fixed Income BlackRock Financial Management, Inc
Firstar Investment Research & Management Company, LLC
Western Asset Management Company
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High Yield Bond BEA Associates
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International Fixed Strategic Fixed Income, L.P.
Income
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</TABLE>
8
<PAGE>
1838 INVESTMENT ADVISORS, L.P.
1838 Investment Advisors, L.P. ("1838") serves as a Money
Manager for a portion of the assets of the Small Cap Fund.
As of June 30, 1997, 1838 managed $5.2 billion in assets,
in large and small capitalization equity, fixed income and
balanced account funds. Clients include corporate employee
benefit plans, municipalities, endowments, foundations,
jointly trusteed plans, insurance companies and wealthy
individuals. The principal address of 1838 is 100
Matsonford Road, Suite 320, Radnor, Pennsylvania 19087.
Edwin B. Powell and Cynthia R. Axelrod are the fund
managers for the portion of the Small Cap Fund's assets
allocated to 1838. These individuals work as a team and
share responsibility. Mr. Powell managed small cap equity
funds for Provident Capital Management from 1987 to 1994.
Prior to joining 1838 in 1995, Ms. Axelrod was with Friess
Associates from 1992 to 1995. Prior to that, she was with
Provident Capital Management from 1987 to 1992.
ACADIAN ASSET MANAGEMENT, INC.
Acadian Asset Management, Inc. ("Acadian") serves as a
Money Manager for a portion of the assets of the
International Equity Fund. Acadian, a wholly-owned
subsidiary of United Asset Management Corporation ("UAM"),
was founded in 1977, and manages approximately $4.25
billion in assets invested globally as of May 31, 1997. The
principal address of Acadian is Two International Place,
26th floor, Boston, Massachusetts 02110.
A committee of investment professionals at Acadian is
responsible for managing the portion of the International
Equity Fund's assets allocated to Acadian.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance Capital Management L.P. ("Alliance") serves as a
Money Manager for a portion of the assets of the Large Cap
Fund. Alliance is a registered investment adviser organized
as a Delaware limited partnership, which originated as
Alliance Capital Management Corporation in 1971. Alliance
Capital Management Corporation, an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the
United States, is the general partner of Alliance. As of
March 31, 1997, Alliance managed over $180 billion in
assets. The principal address of Alliance is 1345 Avenue of
the Americas, New York, New York 10105.
A committee of investment professionals at Alliance
manages the portion of the Large Cap Fund's assets
allocated to Alliance.
AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC.
American Express Asset Management Group Inc. (formerly,
"IDS Advisory Group Inc.") serves as a Money Manager for a
portion of the assets of the Large Cap Fund. American
Express Asset Management Group Inc. ("AEAMG") is a
registered investment adviser and wholly-owned subsidiary
of American Express Financial Corporation. As of May 31,
1997, AEAMG managed over $35 billion in assets with $8
billion of this total in large capitalization growth
domestic equities. AEAMG was founded in 1972 to manage tax-
exempt assets for institutional clients. The principal
business address of AEAMG is IDS Tower 10, Minneapolis,
Minnesota 55440.
9
<PAGE>
A committee composed of five investment fund managers
of the equity investment team has managed the portion of
the Large Cap Fund's assets allocated to AEAMG since the
Fund's inception. No individual person is primarily
responsible for making recommendations to that committee.
BEA ASSOCIATES
BEA Associates ("BEA") serves as the Money Manager for the
High Yield Bond Fund. BEA is a general partnership
organized under the laws of the State of New York and,
together with its predecessor firms, has been engaged in
the investment advisory business for more than 50 years.
BEA is a wholly-owned subsidiary of Credit Suisse, the
second largest Swiss bank, which, in turn, is a subsidiary
of CS Holding, a Swiss corporation. BEA is a diversified
asset manager, handling global equity, balanced, fixed
income and derivative securities accounts for private
individuals, as well as corporate pension and
profit-sharing plans, state pension funds, union funds,
endowments and other charitable institutions. As of June
30, 1997, BEA managed approximately $32 billion in assets.
BEA's principal business address is One Citicorp Center,
153 East 53rd Street, New York, New York 10022.
The High Yield Bond Fund's assets are managed by
Richard J. Lindquist, C.F.A. Mr. Lindquist joined BEA in
1995 as a result of BEA's acquisition of CS First Boston
Investment Management, and has had 14 years of investment
management experience, all 14 years of experience working
with high yield bonds. Prior to joining CS First Boston,
Mr. Lindquist was with Prudential Insurance Company of
America where he managed high yield funds totalling
approximately $1.3 billion. Prior to joining Prudential,
Mr. Lindquist was managing high yield funds at T. Rowe
Price.
BLACKROCK FINANCIAL MANAGEMENT, INC.
BlackRock Financial Management, Inc. ("BlackRock") serves
as a Money Manager for a portion of the assets of the Core
Fixed Income Fund. BlackRock, a registered investment
adviser, is a Delaware corporation with its principal
business address at 345 Park Avenue, 30th Floor, New York,
New York 10154. BlackRock's predecessor was founded in
1988, and as of August 31, 1997, BlackRock had $51 billion
in assets under management. BlackRock is wholly-owned by
PNC Asset Management Group, Inc., a wholly-owned subsidiary
of PNC Bank, N.A. PNC Bank, N.A.'s ultimate parent is PNC
Bank Corp., One PNC Plaza, Pittsburgh, Pennsylvania 15265.
BlackRock provides investment advice to investment
companies, trusts, charitable organizations, pension and
profit sharing plans and government entities.
BlackRock employs a team approach in managing the
Fund assets allocated to BlackRock; however, the fund
manager who has day-to-day responsibility for the portion
of the Core Fixed Income Fund's assets allocated to
BlackRock is Keith Anderson. Mr. Anderson is a Managing
Director and Co-Head of Portfolio Management at BlackRock,
and has 13 years experience investing in fixed income
securities. Prior to the founding of BlackRock in 1988, Mr.
Anderson was a Vice President in Fixed Income Research at
The First Boston Corporation.
10
<PAGE>
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
Boston Partners Asset Management, L.P. ("BPAM") serves as a
Money Manager for a portion of the assets of the Small Cap
Fund. BPAM, a Delaware limited partnership, is a registered
investment adviser, and its general partner is Boston
Partners, Inc. BPAM was founded in April, 1995, and as of
June 30, 1997, it had approximately $10.5 billion in assets
under management. BPAM's clients include corporations,
endowments, foundations, pension and profit sharing plans,
and investment companies. The principal business address of
BPAM is One Financial Center, 43rd Floor, Boston,
Massachusetts 02111.
The portion of the Small Cap Fund's assets allocated
to BPAM is managed by Wayne J. Archambo, C.F.A. Mr.
Archambo has been employed by BPAM since its organization,
and has more than 14 years experience investing in
equities. Prior to joining BPAM, Mr. Archambo was employed
at The Boston Company Asset Management, Inc. ("TBCAM") from
1989 through April, 1995. Mr. Archambo created TBCAM's
small cap value product in 1992. Prior to joining TBCAM in
1989, Mr. Archambo spent six years as a fund
manager/analyst for Boston-based Systematic Investors.
CORONATION ASSET MANAGEMENT (PROPRIETARY) LIMITED
Coronation Asset Management (Proprietary) Limited
("Coronation") serves as a Money Manager for a portion of
the assets of the Emerging Markets Equity Fund. Coronation,
a registered investment adviser organized under the laws of
the Republic of South Africa, was founded in 1993, and as
of July 31, 1997, managed $4.2 billion in assets. The
principal business address of Coronation is 80 Strand
Street, Cape Town, South Africa, 8001.
Investment decisions for Coronation's portion of the
assets of the Fund are made by Anthony Gibson and Louis
Stassen. Prior to joining Coronation in 1993, Mr. Gibson,
the head of Coronation's Investment Committee, and Mr.
Stassen, the head of Coronation's research department,
worked at Syfrets Managed Assets for seven years and one
year, respectively. Prior to joining Syfrets Managed
Assets, Mr. Stassen worked as an Investment Analyst for
Allan Gray Investment Counsel.
FARRELL WAKO GLOBAL INVESTMENT MANAGEMENT, INC.
Farrell Wako Global Investment Management, Inc. ("Farrell
Wako") serves as a Money Manager for a portion of the
assets of the International Equity Fund. Farrell Wako, a
Delaware corporation and a wholly-owned subsidiary of Wako
Securities, was founded in 1991 and is a registered
investment advisor in the U.S. and Japan. Farrell Wako
currently manages over $381 million. The principal address
of Farrell Wako is 780 Third Avenue, New York, New York
10017.
James L. Farrell, the chairman of Farrell Wako,
manages the portion of the assets of the International
Equity Fund allocated to Farrell Wako. Mr. Farrell has 32
years of experience in investment management and applied
financial research and was responsible for management of
over $1 billion in equity assets as Chairman of MPT
Associates prior to his association with Farrell Wako.
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FIRST OF AMERICA INVESTMENT CORPORATION
First of America Investment Corporation ("First America")
serves as a Money Manager for a portion of the assets of
the Small Cap Fund. First America is a Michigan Corporation
that is a wholly-owned subsidiary of First America Bank --
Michigan, N.A., a national banking association, which is in
turn a wholly-owned subsidiary of First America Bank
Corporation, a registered bank holding company. First
America, together with its predecessor, has been engaged in
the investment advisory business since 1932. First
America's principal business address is 303 North Rose
Street, Suite 500, Kalamazoo, Michigan 49007. As of June
30, 1997, First America had approximately $15.7 billion in
assets under management. First America's clients include
mutual funds, trust funds, and individually managed
institutional and individual accounts.
Mr. Roger Stamper, CFA, has primary responsibility
for First America's portion of the assets of the Small Cap
Fund. Mr. Stamper is a Managing Director of First America
and has been with First America since 1988.
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY, LLC
Firstar Investment Research & Management Company, LLC
("FIRMCO") serves as a Money Manager for a portion of the
assets of the Core Fixed Income Fund. FIRMCO is a
registered investment adviser with its principal business
address at 777 East Wisconsin Avenue, Suite 800, Milwaukee,
Wisconsin 53202. As of June 30, 1997, it had approximately
$20.9 billion in assets under management. FIRMCO is a
wholly-owned subsidiary of Firstar Corporation, a bank
holding company located at 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. FIRMCO's clients include
pension and profit sharing plans, trusts and estates and
one other investment company.
Mr. Charles Groeschell, a Senior Vice President of
FIRMCO, has been employed by FIRMCO or its affiliates since
1983, and has 15 years experience in fixed income
investment management. Mr. Groeschell manages the portion
of the Core Fixed Income Fund's assets allocated to FIRMCO.
FURMAN SELZ CAPITAL MANAGEMENT LLC
Furman Selz Capital Management LLC ("Furman Selz") serves
as a Money Manager for a portion of the assets of the Small
Cap Fund. Furman Selz, a Delaware limited liability company
whose predecessor was formed in 1977, is a registered
investment adviser that managed approximately $8.3 billion
in assets as of March 31, 1997. The ultimate parent of
Furman Selz is ING Groep N.V., a Dutch financial services
company. Furman Selz's principal business address is 230
Park Avenue, New York, NY 10169.
Matthew S. Price and David C. Campbell, Managing
Directors/Portfolio Managers, have been with Furman Selz
for over 5 and 7 years, respectively, and are primarily
responsible for the day-to-day management and investment
decisions made with respect to the assets of the Fund.
Prior to joining Furman Selz, Mr. Price and Mr. Campbell
were Senior Portfolio Managers at Value Line Asset
Management.
LAZARD LONDON INTERNATIONAL INVESTMENT MANAGEMENT
LIMITED
Lazard London International Investment Management Limited
("Lazard") serves as a Money Manager for a portion of the
assets of the International Equity Fund. Lazard is a
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<PAGE>
registered investment adviser with its principal business
address at 21 Moorfields, London, England EC2P 2HT. Lazard,
which was founded in 1980, offers international investment
services. Lazard and its asset management affiliates manage
domestic and international funds for institutions and
private clients, including insurance funds, pension funds,
charities and mutual funds. As of June 30, 1997, Lazard and
its asset management affiliates had approximately $60.4
billion in assets under management.
Within the European equity team, Mr. Dino Fuschillo,
Director of Lazard, has primary responsibility for the
day-to-day management of the portion of the International
Equity Fund's assets managed by Lazard. Mr. Fuschillo
joined Lazard in 1989, and has specialized in European
equity management ever since.
LSV ASSET MANAGEMENT
LSV Asset Management ("LSV") serves as a Money Manager for
a portion of the assets of the Large Cap and Small Cap
Funds. LSV is a registered investment adviser organized as
a Delaware general partnership, in which an affiliate of
SIMC owns a majority interest. The general partners
developed a quantitative value investment philosophy that
has been used to manage assets over the past 6 years. The
investment process has been implemented for a number of
institutional clients with aggregate assets invested of
approximately $955 million. The principal business address
of LSV is 181 W. Madison Avenue, Chicago, Illinois 60602.
Josef Lakonishok, Andrei Shleifer and Robert Vishny,
officers of LSV, manage the Funds on an ongoing basis and
make adjustments to the investment model based on their
research and statistical analysis. Through their investment
process, LSV identifies buy and sell candidates subject to
specific tolerances and constraints.
SIMC pays LSV a fee, which is calculated and paid
monthly, based on an annual rate of .20% of the average
monthly market value of the assets of the Large Cap Fund
and .50% of the average monthly market value of the assets
of the Small Cap Fund managed by LSV.
MELLON EQUITY ASSOCIATES
Mellon Equity Associates ("Mellon Equity") serves as a
Money Manager for a portion of the assets of the Large Cap
Fund. Mellon Equity is a Pennsylvania business trust
founded in 1987, whose beneficial owners are Mellon Bank,
N.A. and MMIP, Inc. Mellon Equity is a professional
investment counseling firm that provides investment
management services to the equity and balanced pension,
public fund and profit-sharing investment management
markets, and is an investment adviser registered under the
Investment Advisers Act of 1940, as amended. As of June 30,
1997, Mellon Equity had discretionary management authority
with respect to approximately $14.4 billion of assets.
Mellon Equity's predecessor organization had managed
domestic equity tax-exempt institutional accounts since
1947. The principal business address for Mellon Equity is
500 Grant Street, Suite 3700, Pittsburgh, Pennsylvania
15258.
William P. Rydell and Robert A. Wilk manage the
portion of the Large Cap Fund's assets allocated to Mellon
Equity. Mr. Rydell is the President and Chief Executive
Officer of
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Mellon Equity, and has been managing individual and
collective portfolios at Mellon Equity since 1982. Mr. Wilk
is a Senior Vice President and Portfolio Manager of Mellon
Equity, and has been involved with securities analysis,
quantitative research, asset allocation, trading and client
services at Mellon Equity since April 1990. Prior to
joining Mellon Equity, Mr. Wilk was in charge of portfolio
management and conducted quantitative research for another
investment subsidiary of Mellon Bank Corporation, Triangle
Portfolio Associates.
MONTGOMERY ASSET MANAGEMENT, LLC
Montgomery Asset Management, LLC ("MAM") serves as a Money
Manager for a portion of the assets of the Emerging Markets
Equity Fund. MAM is a subsidiary of Commerzbank AG, a
German financial institution. As of July 31, 1997, MAM had
approximately $9.5 billion in assets under management. MAM
has been providing investment management services for over
seven years. The principal address of MAM is 101 California
Street, San Francisco, California 94111.
Josephine S. Jimenez and Bryan L. Sudweeks share
primary responsibility for the portion of the Emerging
Markets Equity Fund's assets allocated to MAM. Ms. Jimenez
has sixteen years experience in emerging markets investment
and Dr. Sudweeks has eleven years experience in emerging
markets investment. Both joined MAM in 1991.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, INC.
Nicholas-Applegate Capital Management, Inc.
("Nicholas-Applegate") serves as a Money Manager for a
portion of the assets of the Small Cap Fund.
Nicholas-Applegate has operated as an investment adviser
which provides investment services to numerous clients,
including employee benefit plans, public retirement systems
and unions, university endowments, foundations, investment
companies, other institutional investors and individuals.
As of June 30, 1997, Nicholas-Applegate had discretionary
management authority with respect to approximately $30.3
billion of assets. The principal business address of
Nicholas-Applegate is 600 West Broadway, 29th Floor, San
Diego, California 92101. Nicholas-Applegate, pursuant to a
partnership agreement, is controlled by its general
partner, Nicholas-Applegate Capital Management Holdings,
L.P., a California Limited Partnership controlled by Arthur
E. Nicholas.
Nicholas-Applegate manages its portion of the Small
Cap Fund's assets through its systematic-driven management
team under the general supervision of Mr. Nicholas, founder
and Chief Investment Officer of the firm.
Nicholas-Applegate's investment team, headed by Lawrence S.
Speidell, is primarily responsible for the day-to-day
management of the Fund's assets allocated to
Nicholas-Applegate. Mr. Speidell has been a fund manager
and investment team leader with Nicholas-Applegate since
March, 1994. Prior to joining Nicholas-Applegate, he was an
institutional portfolio manager with Batterymarch Financial
Management.
PACIFIC ALLIANCE CAPITAL MANAGEMENT
Pacific Alliance Capital Management ("Pacific") serves as a
Money Manager for a portion of the assets of the Large Cap
Fund. Pacific is a division of Union Bank of California,
N.A.
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<PAGE>
and provides equity and fixed-income management services
for corporate pension plans, endowments, foundations,
Taft-Hartley Plans, public agencies and individuals. Union
Bank of California, N.A., is a wholly-owned subsidiary of
the Bank of Tokyo-Mitsubishi Limited. As of June 30, 1997,
Pacific had discretionary management authority with respect
to approximately $14.7 billion of assets. The principal
address of Pacific is 475 Sansome Street, San Francisco,
California 94111.
A committee of investment professionals at Pacific
manages the portion of the Large Cap Fund's assets
allocated to Pacific.
PARAMETRIC PORTFOLIO ASSOCIATES
Parametric Portfolio Associates ("Parametric") serves as a
Money Manager for a portion of the assets of the Emerging
Markets Equity Fund. Parametric is a general partnership
whose general partners are PIMCO Advisors L.P. ("PIMCO"),
the supervisory general partner, and Parametric Management,
Inc., the managing general partner (a wholly-owned
subsidiary of PIMCO). Parametric's predecessor was founded
in 1987, and as of July 31, 1997, Parametric managed
approximately $2.4 billion in client assets. Parametric's
business address is 701 Fifth Avenue, Suite 7310, Seattle,
WA 98104. PIMCO's address is 800 Newport Center Drive,
Newport Beach, California 92660.
Clifford Quisenberry, CFA, Senior Investment Manager
and Research Manager, is responsible for managing the
portion of the Fund's assets allocated to Parametric. Prior
to joining Parametric, Mr. Quisenberry was a Portfolio
Manager with Cutler & Company.
PROVIDENT INVESTMENT COUNSEL, INC.
Provident Investment Counsel, Inc. ("Provident") serves as
a Money Manager for a portion
of the assets of the Large Cap Fund. Provident is a
registered investment adviser with its principal business
address at 300 North Lake Avenue, Pasadena, California
91101, which, through its predecessors, has been in
business since 1951, a wholly-owned subsidiary of United
Asset Management ("UAM"), a publicly traded investment
adviser holding company. UAM is headquartered at One
International Place, Boston, Massachusetts 02110. Provident
provides investment advice to corporations, public
entities, foundations and labor unions, as well as to other
investment companies. As of June 30, 1997, Provident had
over $20.4 billion in client assets under management.
A team consisting of the senior investment
professionals is responsible for the development of
investment policy and strategy. The implementation of these
decisions for the portion of the Large Cap Fund's assets
allocated to Provident is the responsibility of Lauro
Guerra, Managing Director, and Jeffrey J. Miller, Managing
Director. Mr. Guerra has been with Provident since 1983 and
Mr. Miller has been with the firm since 1972.
SELIGMAN HENDERSON CO.
Seligman Henderson Co. serves as a Money Manager for a
portion of the assets of the International Equity Fund.
Seligman Henderson Co. is a New York general partnership
and is structured as an equal partnership between J.&W.
Seligman & Co. Incorporated and Henderson International
Inc., a controlled affiliate of Henderson plc. Seligman
Henderson Co. was established in 1991 and manages over $4.0
billion in global and international
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<PAGE>
equity portfolios for U.S. institutional and retail
clients. The principal address of Seligman Henderson Co. is
100 Park Avenue, New York, New York 10017.
Mr. William Garnett is primarily responsible for the
day-to-day management and investment decisions with respect
to the portion of the International Equity Funds' assets
allocated to Seligman. Mr. Garnett has more than 11 years'
experience in managing Japanese small cap equity
securities. Mr. Iain Clark, Seligman Henderson Co.'s chief
investment officer, has ultimate responsibility for
portfolio management. Mr. Clark has more than 25 years
experience, including 12 with Henderson plc.
STRATEGIC FIXED INCOME, L.P.
Strategic Fixed Income, L.P. ("SFI") serves as the Money
Manager for the International Fixed Income Fund. SFI is a
limited partnership between Gobi Investment, Inc. and
Strategic Investment Management ("SIM"), the limited
partner, an Arlington, Virginia-based investment manager.
Gobi Investment, Inc. is the general partner, of which Mr.
Kenneth Windheim is the sole shareholder and is the
president and chief investment officer of the firm. As of
July 31, 1997, SFI had approximately $5.7 billion of client
assets under management. The principal address of SFI is
1001 Nineteenth Street North, Suite 1720, Arlington,
Virginia 22209.
Kenneth Windheim, President of SFI, is the portfolio
manager of the International Fixed Income Fund. Mr.
Windheim is assisted by Gregory Barnett and David Jallits,
Directors of SFI. Prior to forming SFI, Kenneth Windheim
managed global fixed income portfolios at Prudential Asset
Management. Prior to joining SFI, Gregory Barnett was
portfolio manager for the Pilgrim Multi-Market Income Fund
with active use of foreign exchange option strategies.
Prior to that, he was vice president and senior fixed
income portfolio manager at Lexington Management. Prior to
joining SFI, David Jallits was senior Portfolio Manager for
a hedge fund at Teton Partners. From 1982 to 1994, he was
Vice President and Global Fixed Income Portfolio Manager at
The Putnam Companies.
WALL STREET ASSOCIATES
Wall Street Associates ("WSA") serves as a Money Manager
for a portion of the assets of the Small Cap Fund. WSA was
founded in 1987, and as of July 31, 1997, had approximately
$1.2 billion in assets under management. WSA provides
investment advisory services for institutional clients, an
investment partnership for which it serves as general
partner, a group trust, for which it serves as sole
investment manager, and an offshore fund for foreign
investors for which it serves as the sole investment
manager. The principal business address of WSA is at 1200
Prospect Street, Suite 100, La Jolla, California 92037.
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<PAGE>
William Jeffery III, Kenneth F. McCain, and Richard
S. Coons, each of whom owns 1/3 of WSA, serve as fund
managers for the portion of the Small Cap Fund's assets
allocated to WSA. Each is a principal of WSA and they have
an average of 27 years of investment management experience.
WESTERN ASSET MANAGEMENT COMPANY
Western Asset Management Company ("Western") serves as a
Money Manager for a portion of the assets of the Core Fixed
Income Fund. Western is a wholly-owned subsidiary of Legg
Mason, Inc., a financial services company located in
Baltimore, Maryland. Western was founded in 1971 and
specializes in the management of fixed income funds. As of
June 30, 1997, Western managed approximately $29.6 billion
in client assets, including $4.4 billion of investment
company assets. The principal business address of Western
is 117 East Colorado Boulevard, Pasadena, California 91105.
Kent S. Engel, Director and Chief Investment Officer
of Western, is primarily responsible for the day-to-day
management of the portion of the Core Fixed Income Fund's
assets allocated to Western. Mr. Engel has been with
Western and its predecessor since 1969.
YAMAICHI CAPITAL MANAGEMENT, INC. AND YAMAICHI CAPITAL MANAGEMENT (SINGAPORE)
LIMITED
Yamaichi Capital Management, Inc. ("Yamaichi") and Yamaichi
Capital Management (Singapore) Limited ("YCMS") jointly
serve as Money Manager for a portion of the assets of the
International Equity and Emerging Markets Equity Funds.
Yamaichi is a New York Corporation established in 1981 and
YCMS is a Singapore corporation established in 1979, and
each is a wholly-owned subsidiary of Yamaichi International
Capital Management Co., Ltd. ("YICM"). Yamaichi, YCMS and
YICM are controlled by Yamaichi Securities Co., Ltd., which
is located in Tokyo, Japan. YCMS and its affiliates manage
approximately $24 billion worldwide. The principal address
of Yamaichi is 2 World Trade Center, Suite 9828, New York,
New York 10048. The principal address of YCMS is 138
Robinson Road, #13-01/05, Hong Leong Centre, Singapore
068906.
Mr. Marco Wong leads the management team for the
assets of the International Equity and Emerging Markets
Equity Funds allocated to Yamaichi and YCMS. Mr. Wong has
been with YCMS since 1986.
INVESTMENT OBJECTIVES
AND POLICIES
___________________________________________________________________________
Each Fund's investment objective and policies are set forth
below. See "General Investment Policies and Risk Factors"
for information about additional investment practices that
some or all of the Funds may employ.
LARGE CAP FUND
The investment objective of the Large Cap Fund is long-term
growth of capital and income.
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<PAGE>
Under normal market conditions, the Fund will invest
at least 65% of its total assets in equity securities of
large companies (i.e., companies with market
capitalizations of more than $1 billion at the time of
purchase). Any remaining assets may be invested in
investment grade fixed income securities, including
variable and floating rate securities, or in equity
securities of smaller companies that the Fund's Money
Managers believe are appropriate in light of the Fund's
objective. The Fund may also purchase illiquid securities,
shares of other investment companies, when-issued and
delayed-delivery securities and zero coupon obligations.
The Fund may also borrow money and lend its securities to
qualified borrowers.
SMALL CAP FUND
The investment objective of the Small Cap Fund is capital
appreciation.
Under normal market conditions, the Fund will invest
at least 65% of its total assets in the equity securities
of smaller companies (i.e., companies with market
capitalizations of less than $1 billion at the time of
purchase). Any remaining assets may be invested in
investment grade fixed income securities, including
variable and floating rate securities, or in equity
securities of larger companies that the Fund's Money
Managers believe are appropriate in light of the Fund's
objective. The Fund may also purchase illiquid securities,
shares of other investment companies, when-issued and
delayed-delivery securities and zero coupon obligations.
The Fund may also borrow money and lend its securities to
qualified borrowers.
CORE FIXED INCOME FUND
The investment objective of the Core Fixed Income Fund is
current income consistent with the preservation of capital.
Under normal market conditions, the Fund will invest
at least 65% of its total assets in investment grade fixed
income securities.
The Fund may acquire all types of fixed income
securities issued by domestic and foreign private and
governmental issuers, including mortgage-backed and
asset-backed securities and variable and floating rate
securities. The Fund may invest not only in traditional
fixed income securities, such as bonds and debentures, but
in structured securities that make interest and principal
payments based upon the performance of specified assets or
indices. Structured securities include mortgage-backed
securities such as pass-through certificates,
collateralized mortgage obligations and interest and
principal only components of mortgage-backed securities.
The Fund may also invest in mortgage dollar roll
transactions, Yankee obligations, illiquid securities,
shares of other investment companies, obligations of
supranational agencies, warrants, when-issued and delayed-
delivery securities and zero coupon obligations. The Fund
may also borrow money and lend its securities to qualified
borrowers.
The Core Fixed Income Fund invests in a portfolio
with a dollar-weighted average duration that will, under
normal market conditions, stay within plus or minus 20% of
what the Money Managers believe to be the average duration
of the domestic bond market as a whole. The Money Managers
base their analysis of the average duration of the domestic
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<PAGE>
bond market on bond market indices which they believe to be
representative. The Money Managers currently use the Lehman
Aggregate Bond Index for this purpose.
HIGH YIELD BOND FUND
The investment objective of the High Yield Bond Fund is to
maximize total return.
Under normal market conditions, the Fund will invest
at least 65% of its total assets in fixed income securities
that are below investment grade, i.e., rated below the top
four rating categories by a NRSRO at the time of purchase,
or, if not rated, determined to be of comparable quality by
the Fund's Money Manager. Below investment grade securities
are commonly referred to as "junk bonds," and generally
entail increased credit and market risk. See "Lower Rated
Securities" in "General Investment Policies and Risk
Factors." The achievement of the Fund's investment
objective may be more dependent on the Money Manager's own
credit analysis than would be the case if the Fund invested
in higher rated securities. There is no bottom limit on the
ratings of high yield securities that may be purchased and
held by the Fund. These securities may have predominantly
speculative characteristics or may be in default. Any
remaining assets may be invested in equity, investment
grade fixed income and money market securities that the
Money Manager believes are appropriate in light of the
Fund's objective.
The Fund may acquire all types of fixed income
securities issued by domestic and foreign private and
governmental issuers, including mortgage-backed and
asset-backed securities, and variable and floating rate
securities. The Fund may also invest in Yankee obligations,
illiquid securities, shares of other investment companies,
warrants, when-issued and delayed-delivery securities, zero
coupon obligations, pay-in-kind and deferred payment
securities. The Fund may also borrow money, enter into
forward foreign currency contracts, and lend its securities
to qualified buyers. The Fund's Money Manager may vary the
average maturity of the securities in the Fund without
limit, and there is no restriction on the maturity of any
individual security.
The Fund's Money Manager will consider ratings, but
it will perform its own analyses and will not rely
principally on ratings. The Fund's Money Manager will
consider, among other things, the price of the security and
the financial history and condition, the prospects and the
management of an issuer in selecting securities for the
Fund.
INTERNATIONAL FIXED INCOME FUND
The International Fixed Income Fund seeks to provide
capital appreciation and current income.
Under normal market conditions, the Fund will invest
in at least 65% of its total assets in investment grade
fixed income securities of issuers located in at least
three countries other than the United States.
The International Fixed Income Fund may invest its
remaining assets in obligations issued or guaranteed as to
principal and interest by the United States Government, its
agencies or instrumentalities ("U.S. Government
securities") and preferred stocks of U.S. and foreign
issuers. The Fund also may engage in short selling against
the box. The Fund may also invest in securities of
companies located in and governments of emerging market
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<PAGE>
countries, as defined below. Investments in emerging
markets countries will not exceed 5% of the Fund's total
assets at the time of purchase. Such investments entail
different risks than investments in securities of companies
and governments of more developed, stable nations.
The Fund may acquire all types of fixed income
securities issued by foreign private and governmental
issuers, including mortgage-backed and asset-backed
securities, and variable and floating rate securities. The
Fund may invest in traditional fixed income securities such
as bonds and debentures, and in structured securities that
derive interest and principal payments from specified
assets or indices. All such investments will be in
investment grade securities denominated in various
currencies, including the European Currency Unit. The Fund
may also invest in illiquid securities, shares of other
investment companies, obligations of supranational
entities, warrants, when-issued and delayed-delivery
securities and zero coupon obligations. The Fund may also
borrow money, enter into forward foreign currency
transactions and swap contracts and lend its securities to
qualified buyers.
There are no restrictions on the average maturity of
the Fund or the maturity of any single instrument.
Maturities may vary widely depending on the Fund's Money
Managers' assessment of interest rate trends and other
economic and market factors.
The Fund is a non-diversified fund. Investment in a
non-diversified company may entail greater risk than
investment in a diversified company. The Fund's ability to
focus its investments on a fewer number of issuers means
that economic, political or regulatory developments
affecting the Fund's investment securities could have a
greater impact on the total value of the Fund than would be
the case if the Fund were diversified among more issuers.
The Fund intends to comply with the diversification
requirements of Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). See "Taxes" for
additional information.
The Emerging Markets Equity Fund seeks to provide capital
appreciation.
Under normal market conditions, the Fund will invest
at least 65% of its total assets in the equity securities
of emerging market issuers. The Fund defines an emerging
market country as any country the economy and market of
which the World Bank or the United Nations considers to be
emerging or developing. The Fund's Money Manager considers
emerging market issuers to include companies the securities
of which are principally traded in the capital markets of
emerging market countries; that derive at least 50% of
their total revenue from either goods produced or services
rendered in emerging market countries, regardless of where
the securities of such companies are principally traded; or
that are organized under the laws of and have a principal
office in an emerging market country. Under normal market
conditions, the Fund maintains investments in at least six
emerging market countries and does not invest more than 35%
of its total assets in any one country.
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<PAGE>
EMERGING MARKETS EQUITY FUND
The Fund may invest any remaining assets in
investment grade fixed income securities, including
variable and floating rate securities, of emerging market
governments and companies, and may invest up to 5% of its
total assets in securities that are rated below investment
grade. Certain securities issued by governments of emerging
market countries are or may be eligible for conversion into
investments in emerging market companies under debt
conversion programs sponsored by such governments. Bonds
rated below investment grade are often referred to as "junk
bonds." Such securities involve greater risk of default or
price volatility than investment grade securities. See
"Lower Rated Securities" in "General Investment Policies
and Risk Factors."
When in the Fund's Money Manager's opinion there is
an insufficient supply of suitable securities from emerging
market issuers, the Fund may invest up to 20% of its total
assets in the equity securities of non-emerging market
companies contained in the Morgan Stanley Capital
International Europe, Australia and Far East Index (the
"EAFE Index"). These companies typically have larger
average market capitalizations than the emerging market
companies in which the Fund generally invests.
Securities of non-U.S. issuers purchased by the Fund
may be purchased on exchanges in foreign markets, on U.S.
registered exchanges or the domestic or foreign
over-the-counter markets, and may be purchased in initial
public offerings. The Fund may also purchase illiquid
securities, including "special situation" securities,
shares of other investment companies, obligations of
supranational entities, when-issued and delayed-delivery
securities and zero coupon obligations. The Fund may also
borrow money, enter into forward foreign currency
transactions and swap contracts and lend its securities to
qualified buyers.
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks to provide capital
appreciation.
Under normal market conditions, the Fund will invest
at least 65% of its total assets in the equity securities
of non-U.S. issuers located in at least three different
countries. Any remaining assets will be invested in U.S. or
non-U.S. cash reserves and money market instruments, as
well as variable and floating rate securities. The Fund may
also purchase illiquid securities, shares of other
investment companies, obligations of supranational
entities, when-issued and delayed-delivery securities and
zero coupon obligations. The Fund may also borrow money,
enter into forward foreign currency and swap contracts and
lend its securities to qualified buyers.
Securities of non-U.S. issuers purchased by the Fund
may be purchased on exchanges in foreign markets, on U.S.
registered exchanges or the domestic or foreign
over-the-counter markets.
There can be no assurance that the Funds will achieve
their respective investment objectives.
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<PAGE>
GENERAL INVESTMENT
POLICIES AND RISK
FACTORS
____________________________________________________________________________
EQUITY SECURITIES
Equity securities represent ownership interests in a
company or corporation and include common stock, preferred
stock and warrants and other rights to acquire such
instruments and convertible securities. Equity securities
also include structured securities whose risk and return
characteristics are similar to those of traditional equity
securities. Changes in the value of portfolio securities
will not necessarily affect cash income derived from these
securities, but will affect a Fund's net asset value.
FIXED INCOME SECURITIES
Fixed income securities consist primarily of debt
obligations issued by governments, corporations,
municipalities and other borrowers, but may also include
structured securities that provide for participation
interests in debt obligations. The market value of fixed
income investments will generally change in response to
interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed
income securities generally rise. Conversely, during
periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities
with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in
interest rates. Changes by recognized agencies in the
rating of any fixed income security and in the ability of
an issuer to make payments of interest and principal also
affect the value of these investments. Changes in the value
of these securities will not affect cash income derived
from these securities, but will affect a Fund's net asset
value.
Fixed income securities are considered investment
grade if they are rated in one of the four highest rating
categories by a nationally recognized statistical rating
organization ("NRSRO"), or, if not rated, are determined to
be of comparable quality by the Fund's Money Managers. The
"Appendix" to this Prospectus sets forth a description of
the bond rating categories of several NRSROs. Ratings of
each NRSRO represents its opinion of the safety of
principal and interest payments (and not the market risk)
of bonds and other fixed income securities it undertakes to
rate at the time of issuance. Ratings are not absolute
standards of quality and may not reflect changes in an
issuer's creditworthiness.
Fixed income securities rated BBB or Baa lack
outstanding investment characteristics, and have
speculative characteristics as well. Fixed income
securities rated below investment grade are often referred
to as "junk bonds." Such securities involve greater risk of
default or price declines than investment grade securities.
In the event a security owned by a Fund is downgraded, the
adviser will review the situation and take appropriate
action with regard to the security.
FOREIGN CURRENCY TRANSACTIONS
The Funds may enter into forward foreign currency contracts
to manage its foreign currency exposure and as a hedge
against possible variations in foreign exchange rates.
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The Funds may enter into forward foreign currency contracts
to hedge a specific security transaction or to hedge a
portfolio position. These contracts may be bought or sold
to protect the Funds, to some degree, against possible
losses resulting from an adverse change in the relationship
between foreign currencies and the U.S. dollar. The Funds
also may invest in foreign currency futures and in options
on currencies.
LOWER RATED SECURITIES
The High Yield Bond and Emerging Markets Equity Funds may
invest in lower rated securities. Fixed income securities
are subject to the risk of an issuer's ability to meet
principal and interest payments on the obligation (credit
risk), and may also be subject to price volatility due to
such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated or
unrated (i.e., high yield) securities are more likely to
react to developments affecting market and credit risk than
are more highly rated securities, which primarily react to
movements in the general level of interest rates. The
market values of fixed income securities tend to vary
inversely with the level of interest rates. Yields and
market values of high yield securities will fluctuate over
time, reflecting not only changing interest rates but the
market's perception of credit quality and the outlook for
economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline
in value due to heightened concern over credit quality,
regardless of prevailing interest rates. Investors should
carefully consider the relative risks of investing in high
yield securities and understand that such securities
generally are not meant for short-term investing.
The high yield market is relatively new and its
growth paralleled a long period of economic expansion and
an increase in merger, acquisition and leveraged buyout
activity. Adverse economic developments can disrupt the
market for high yield securities, and severely affect the
ability of issuers, especially highly leveraged issuers, to
service their debt obligations or to repay their
obligations upon maturity which may lead to a higher
incidence of default on such securities. In addition, the
secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated
securities. As a result, a Fund's Money Managers could find
it more difficult to sell these securities or may be able
to sell the securities only at prices lower than if such
securities were widely traded. Furthermore, a Fund may
experience difficulty in valuing certain securities at
certain times. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may
be less than the prices used in calculating such Fund's net
asset value. Prices for high yield securities may also be
affected by legislative and regulatory developments.
Lower rated or unrated fixed income obligations also
present risks based on payment expectations. If an issuer
calls the obligations for redemption, a Fund may have to
replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Fund
experiences unexpected net redemptions, it may be forced to
sell its higher rated securities, resulting in a decline in
the overall credit quality of the Fund's investment
portfolio and increasing the exposure of the Fund to the
risks of high yield securities.
23
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MONEY MARKET
SECURITIES
Each Fund may hold cash reserves and invest in money market
instruments (including securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities,
repurchase agreements, certificates of deposit and bankers'
acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as
of the end of their most recent fiscal year, high-grade
commercial paper and other short-term debt securities)
rated at the time of purchase in the top two categories by
an NRSRO, or, if not rated, determined by the advisers to
be of comparable quality at the time of purchase.
OPTIONS AND FUTURES
Each Fund may purchase or write options (including options
on non-U.S. indices and currencies), futures (including
futures on U.S. Treasury obligations and Eurodollar
instruments) and options on futures. Risks associated with
investing in options and futures may include lack of a
liquid secondary market, trading restrictions which may be
imposed by an exchange, government regulations which may
restrict trading, an imperfect correlation between the
prices of securities held by a Fund and the price of an
option or future and, in the case of non-U.S. futures and
options, the risks of investing in foreign markets
generally.
PORTFOLIO TURNOVER RATE
Each Fund's annual portfolio turnover rate will generally
not exceed 150%, except for the Core Fixed Income Fund's
portfolio turnover rate, which will generally not exceed
300%. Portfolio turnover rates over 100% will result in
higher transaction costs and may result in additional taxes
for shareholders. See "Taxes."
SECURITIES OF FOREIGN AND EMERGING MARKET ISSUERS
There are certain risks connected with investing in foreign
securities. These include risks of adverse political and
economic developments (including possible governmental
seizure or nationalization of assets), the possible
imposition of exchange or currency controls or other
governmental restrictions, less uniformity in accounting
and reporting requirements, the possibility that there will
be less information on such securities and their issuers
available to the public, the difficulty of obtaining or
enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in
effecting repatriation of capital invested abroad and
difficulties in transaction settlements and the effect of
delay on shareholder equity. Foreign securities may be
subject to foreign taxes, and may be less marketable than
comparable U.S. securities. The value of a Fund's
investments denominated in foreign currencies will depend
on the relative strengths of those currencies and the U.S.
dollar, and a Fund may be affected favorably or unfavorably
by changes in the exchange rates or exchange or currency
control regulations between foreign currencies and the U.S.
dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net
investment income and gains if any, to be distributed to
shareholders by a Fund.
A Fund's investments in emerging markets can be
considered speculative, and therefore may offer higher
potential for gains and losses than investments in
developed markets of the world. With respect to any
emerging country, there may be a greater potential for
nationalization, expropriation or confiscatory taxation,
political changes,
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<PAGE>
government regulation, social instability or diplomatic
developments (including war) which could affect adversely
the economies of such countries or investments in such
countries. The economies of developing countries generally
are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely
affected by trade barriers, exchange or currency controls,
managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the
countries with which they trade.
In addition to the risks of investing in emerging
market country debt securities, a Fund's investment in
government, government-related and restructured debt
instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest,
requests to reschedule or restructure outstanding debt, and
requests to extend additional loan amounts. A Fund may have
limited recourse in the event of default on such debt
instruments.
TEMPORARY DEFENSIVE INVESTMENTS
For temporary defensive purposes, when the Money Managers
determine that market conditions warrant, the Funds may
invest up to 100% of their assets in U.S. dollar-
denominated fixed income securities or debt obligations and
in domestic and foreign money market instruments. In
addition, the Funds may invest in the foregoing instruments
and hold cash for liquidity purposes.
For additional information regarding the Funds'
permitted investments, see "Description of Permitted
Investments and Risk Factors" in this Prospectus and
"Description of Permitted Investments" in the Statement of
Additional Information. For a description of the above
ratings, see the "Appendix."
INVESTMENT LIMITATIONS
________________________________________________________________________
The investment objectives and certain of the investment
limitations are fundamental policies of the Funds.
Fundamental policies cannot be changed with respect to the
Trust or a Fund without the consent of the holders of a
majority of the Trust's or that Fund's outstanding shares.
NO FUND MAY:
1. With respect to 75% of its total assets, (i) purchase
securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies
or instrumentalities) if, as a result, more than 5% of
its total assets would be invested in the securities of
such issuer; or (ii) acquire more than 10% of the
outstanding voting securities of any one issuer. This
restriction does not apply to the International Fixed
Income Fund.
2. Purchase any securities which would cause more than 25%
of its total assets to be invested in the securities of
one or more issuers conducting their principal business
activities in the same industry, provided that this
limitation does not apply to
25
<PAGE>
investments in securities issued or guaranteed by the
United States Government, its agencies or
instrumentalities.
For purposes of the industry concentration limitation,
specified in paragraph 2 above, (i) utility companies will
be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be
considered a separate industry; (ii) financial service
companies will be classified according to end users of
their services, for example, automobile finance, bank
finance and diversified finance will each be considered a
separate industry; (iii) supranational agencies will be
deemed to be issuers conducting their principal business
activities in the same industry; and (iv) governmental
issuers within a particular country will be deemed to be
conducting their principal business activities in the same
industry.
The foregoing percentage limitations will apply at
the time of the purchase of a security. Additional
fundamental and non-fundamental investment limitations are
set forth in the Statement of Additional Information.
PURCHASE AND
REDEMPTION OF SHARES
____________________________________________________________________________
Shares of each Fund may be purchased or redeemed on days on
which the New York Stock Exchange is open for business
(each, a "Business Day").
Shareholders who desire to purchase shares for cash
must place their orders with the Transfer Agent (or its
authorized agent) prior to 4:00 p.m. Eastern time on any
Business Day for the order to be accepted on that Business
Day. Generally, payment for fund shares must be transmitted
on the next Business Day following the day the order is
placed. Payment for such shares may only be transmitted or
delivered in federal funds to the wire agent. The Trust
reserves the right to reject a purchase order when the
distributor determines that it is not in the best interest
of the Trust or its shareholders to accept such purchase
order.
Purchases will be made in full and fractional shares
of a Fund calculated to three decimal places. The Trust
will send shareholders a statement of shares owned after
each transaction. The purchase price of shares is the net
asset value next determined after a purchase order is
received and accepted by the Trust. The net asset value per
share of each Fund is determined by dividing the total
market value of a Fund's investment and other assets, less
any liabilities, by the total number of outstanding shares
of that Fund. Net asset value per share is determined daily
at the close of business of the New York Stock Exchange
(currently 4:00 p.m. Eastern time) on each Business Day.
Information about the market value of each portfolio
security may be obtained by SEI Management from an
independent pricing service. The pricing service relies
primarily on prices of actual market transactions as well
as trader quotations. However, the pricing
26
<PAGE>
service may use a matrix system to determine valuations of
equity and fixed income securities. This system considers
such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific
securities in arriving at valuations. The procedures used
by the pricing service and its valuations are reviewed by
the officers of the Trust under the general supervision of
the Trustees. Securities that have maturities of 60 days or
less at the time of purchase will be valued using the
amortized cost method (described in the Statement of
Additional Information).
Shares of a Fund may be purchased in exchange for
securities included in the Fund subject to SEI Management's
determination that the securities are acceptable.
Securities accepted in an exchange will be valued at the
market value. All accrued interest and subscription of
other rights which are reflected in the market price of
accepted securities at the time of valuation become the
property of the Trust and must be delivered by the
Shareholder to the Trust upon receipt from the issuer.
SEI Management will not accept securities for a Fund
unless (1) such securities are appropriate for the Fund at
the time of the exchange; (2) such securities are acquired
for investment and not for resale; (3) the Shareholder
represents and agrees that all securities offered to the
Trust for the Fund are not subject to any restrictions upon
their sale by the Fund under the Securities Act of 1933, or
otherwise; (4) such securities are traded on the American
Stock Exchange, the New York Stock Exchange or on NASDAQ in
an unrelated transaction with a quoted sales price on the
same day the exchange valuation is made or, if not listed
on such exchanges or on NASDAQ, have prices available from
an independent pricing service approved by the Trust's
Board of Trustees; and (5) the securities may be acquired
under the investment restrictions applicable to the Fund.
Shareholders who desire to redeem shares of a Fund
must place their redemption orders with the Transfer Agent
(or its authorized agent) prior to 4:00 p.m. Eastern time
on any Business Day. The redemption price is the net asset
value per share of the Fund next determined after receipt
by the Transfer Agent of the redemption order. Payment on
redemption will be made as promptly as possible and, in any
event, within seven days after the redemption order is
received.
The Trust intends to generally make redemptions in
cash. The Trust may, however, make redemptions in whole or
in part by a distribution in kind of readily marketable
securities in lieu of cash. Shareholders may incur
brokerage costs on the sale of any such securities so
received in payment of redemptions.
Purchase and redemption orders may be placed by
telephone. Neither the Trust nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The
Trust and the Transfer Agent will each employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine, including requiring a form of
personal identification prior to acting upon instructions
received by telephone and recording telephone instructions.
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<PAGE>
If market conditions are extraordinarily active, or
other extraordinary circumstances exist, and shareholders
experience difficulties placing redemption orders by
telephone, shareholders may wish to consider placing their
order by other means.
PERFORMANCE
______________________________________________________________________
From time to time, a Fund may advertise yield and total
return. These figures will be based on historical earnings
and are not intended to indicate future performance. No
representation can be made concerning actual yield or
future returns. The yield of a Fund refers to the
annualized income generated by an investment in the Fund
over a specified 30-day period. The yield is calculated by
assuming that the same amount of income generated by the
investment during that period is generated in each 30-day
period over one year and is shown as a percentage of the
investment.
The total return of a Fund refers to the average
compounded rate of return on a hypothetical investment for
designated time periods, assuming that the entire
investment is redeemed at the end of each period and
assuming the reinvestment of all dividend and capital gain
distributions.
A Fund may periodically compare its performance to
that of: (i) other mutual funds tracked by mutual fund
rating services (such as Lipper Analytical), or by
financial and business publications and periodicals; (ii)
broad groups of comparable mutual funds; (iii) unmanaged
indices which may assume investment of dividends but
generally do not reflect deductions for administrative and
management costs; or (iv) other investment alternatives. A
Fund may quote Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance. A
Fund may use long-term performance of these capital markets
to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical
investment in any of the capital markets. A Fund may also
quote financial and business publications and periodicals
as they relate to fund management, investment philosophy
and investment techniques.
A Fund may quote various measures of volatility and
benchmark correlation in advertising and may compare these
measures to those of other funds. Measures of volatility
attempt to compare historical share price fluctuations or
total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark
might be. Measures of volatility and correlation are
calculated using averages of historical data and cannot be
calculated precisely.
TAXES
______________________________________________________________________________
The following summary of federal income tax consequences is
based on current tax laws and regulations, which may be
changed by legislative, judicial or administrative action.
No attempt has been made to present a detailed explanation
of the federal, state or local tax treatment of the Funds
or their shareholders. Accordingly, shareholders are urged
to consult their tax advisers regarding specific questions
as to federal, state and local taxes.
28
<PAGE>
State and local tax consequences of an investment in a Fund
may differ from the federal income tax consequences
described below. Additional information concerning taxes is
set forth in the Statement of Additional Information.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal
income tax purposes and is not combined with the Trust's
other funds. The Funds intend to qualify for the special
tax treatment afforded regulated investment companies
("RICs") under Subchapter M of the Code so as to be
relieved of federal income tax on net investment company
taxable income and net capital gains (the excess of net
long-term capital gain over net short-term capital losses)
distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net
investment income (including net short-term capital gains)
to shareholders. Dividends from a Fund's net investment
income are taxable to its shareholders as ordinary income
(whether received in cash or in additional shares).
Distributions of net capital gains are taxable to
shareholders as gain from the sale or exchange of a capital
asset held for more than one year regardless of how long
the shareholder has held shares. Dividends distributions of
the Core Fixed Income Fund, High Yield Bond Fund,
International Fixed Income Fund, Emerging Markets Equity
Fund and International Equity Fund will not qualify for the
corporate dividends-received deduction. The Funds will
provide annual reports to shareholders of the federal
income tax status of all distributions.
Dividends declared by a Fund in October, November or
December of any year and payable to shareholders of record
on a date in such a month will be deemed to have been paid
by the Fund and received by the Shareholders on December 31
of the year declared if paid by the Fund at any time during
the following January.
Each Fund intends to make sufficient distributions to
avoid liability for the federal excise tax applicable to
RICs.
Investment income received by the Funds from sources
within foreign countries may be subject to foreign income
taxes withheld at the source. To the extent that a Fund is
liable for foreign income taxes so withheld, the Fund
intends to operate so as to meet the requirements of the
Code to pass through to the shareholders credit for foreign
income taxes paid. Although the Funds intend to meet Code
requirements to pass through credit for such taxes, there
can be no assurance that the Funds will be able to do so.
Each sale, exchange or redemption of Fund shares is a
taxable transaction to the shareholder.
GENERAL INFORMATION
______________________________________________________________
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by
the Trustees under the laws of the Commonwealth of
Massachusetts. The Trustees have approved contracts under
which, as described above, certain companies provide
essential management services to the Trust. All
consideration received by the Trust for shares of any fund,
and all assets of such fund
29
<PAGE>
belong to that fund and would be subject to the liabilities
related thereto. The Trust pays its expenses, including the
fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation
materials and reports to shareholders, costs of custodial
services and registering the shares under federal and state
securities laws, pricing, insurance expenses, litigation
and other extraordinary expenses, brokerage costs, interest
charges, taxes and organizational expenses.
VOTING RIGHTS
Each share held entitles the shareholder of record to one
vote. The shareholders of each Fund will vote separately on
matters pertaining solely to that Fund, such as any
distribution plan. As a Massachusetts business trust, the
Trust is not required to hold annual meetings of
shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election
of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written
request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a
meeting is requested, the Trust will provide appropriate
assistance and information to the shareholders requesting
the meeting.
As of September 1, 1997, Bank of America NT and SA
owned a controlling interest (as defined by the Investment
Company Act of 1940) in the Trust's International Equity,
Core Fixed Income, Large Cap and Small Cap Funds.
REPORTING
The Trust issues an unaudited financial report
semi-annually and audited financial statements annually.
The Trust furnishes proxy statements and other reports to
shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to SEI Fund
Management, Oaks, Pennsylvania 19456.
DIVIDENDS
Substantially all of the net investment income (exclusive
of capital gains) of each Fund is periodically declared and
paid as a dividend. Dividends currently are paid
periodically for the International Fixed Income, Emerging
Markets Equity and International Equity Funds, monthly for
the Core Fixed Income and High Yield Bond Funds and
quarterly for the Small Cap and Large Cap Funds. Currently,
net capital gains for all the Funds (the excess of net
long-term capital gain over net short-term capital loss)
realized, if any, will be distributed at least annually.
Shareholders automatically receive all income
dividends and capital gains distributions in additional
shares at the net asset value next determined following the
record date, unless the shareholder has elected to take
such payment in cash. Shareholders may change their
election by providing written notice to SEI Management at
least 15 days prior to the distribution.
Dividends and capital gains of each Fund are paid on
a per-share basis. The value of each share will be reduced
by the amount of any such payment. If shares are purchased
shortly before the record date for a dividend or capital
gains distributions, a shareholder
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<PAGE>
will pay the full price for the share and receive some
portion of the price back as a taxable dividend or
distribution.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve any Fund's
investment objective by investing all of that Fund's assets
in another investment company having the same investment
objective and substantially the same investment policies
and restrictions as those applicable to that Fund. It is
expected that any such investment company would be managed
by SIMC in substantially the same manner as the existing
Fund. The initial shareholder(s) of each Fund voted to vest
such authority in the sole discretion of the Trustees and
such investment may be made without further approval of the
shareholders of the Funds. However, shareholders of the
Funds will be given at least 30 days' prior notice of any
such investment. Such investment would be made only if the
Trustees determine it to be in the best interests of a Fund
and its shareholders. In making that determination the
Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and
achieve operational efficiencies. Although the Funds
believe that the Trustees will not approve an arrangement
that is likely to result in higher costs, no assurance is
given that costs will be materially reduced if this option
is implemented.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust.
Coopers & Lybrand LLP serves as the independent accountants
of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box
7618, Philadelphia, Pennsylvania 19101, acts as wire agent
for each of the Funds and custodian for the assets of the
Large Cap, Small Cap, Core Fixed Income and High Yield Bond
Funds. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, acts as custodian for
the assets of the International Fixed Income, Emerging
Markets Equity and International Equity Funds. CoreStates
Bank, N.A. and State Street Bank and Trust Company (each a
"Custodian," and, together, the "Custodians") hold cash,
securities and other assets of the respective Funds for
which they act as custodian as required by the 1940 Act.
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<PAGE>
DESCRIPTION OF
PERMITTED INVESTMENTS
AND
RISK FACTORS
______________________________________________________________________
The following is a description of the permitted investment
practices for the Funds, and the associated risk factors:
AMERICAN DEPOSITARY RECEIPTS ("ADRS"), EUROPEAN DEPOSITARY RECEIPTS ("EDRS") AND
GLOBAL DEPOSITARY RECEIPTS ("GDRS")
ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a
foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares.
EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), are securities, typically
issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities
issued by either a U.S. or foreign issuer. GDRs are issued
globally and evidence a similar ownership arrangement.
Generally, ADRs are designed for trading in the U.S.
securities market, EDRs are designed for trading in
European securities market and GDRs are designed for
trading in non-U.S. securities markets. ADRs, EDRs, CDRs
and GDRs may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas
an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's
underlying security.
ASSET-BACKED SECURITIES
Asset-backed securities are secured by non-mortgage assets
such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt
instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such
debt. A Fund may invest in other asset-backed securities
that may be created in the future if the Money Managers
determine that they are suitable.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are
exchangeable for a set number of another security at a
prestated price. Convertible securities typically have
characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market
value of a convertible security tends to move with the
market value of the underlying stock. The value of a
convertible security is also affected by prevailing
interest rates, the credit quality of the issuer, and any
call provisions.
DEMAND INSTRUMENTS
Certain instruments may entail a demand feature which
permits the holder to demand payment of the principal
amount of the instrument. Demand instruments include
variable rate demand notes.
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<PAGE>
DERIVATIVES
Derivatives are investments that derive their value from
other securities, assets or indices. The following may be
considered derivative securities: futures, options on
futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (e.g., CMOs, REMICs, IOs and
POs), when-issued securities and forward commitments,
floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (e.g.,
receipts and STRIPs), privately issued stripped securities
(e.g., TIGRs, TRs and CATS). See elsewhere in this
"Description of Permitted Investments and Risk Factors" for
discussions of certain of these instruments, and see
"Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to
their use.
FORWARD FOREIGN CURRENCY CONTRACTS
A forward contract involves an obligation to purchase or
sell a specific currency amount at a future date, agreed
upon by the parties, at a price set at the time of the
contract. A Fund may enter into a contract to sell, for a
fixed amount of U.S. dollars or other appropriate currency,
the amount of foreign currency approximating the value of
some or all of the Fund's securities denominated in such
foreign currency.
At the maturity of a forward contract, the Fund may
either sell a fund security and make delivery of the
foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the
same currency trader, obligating it to purchase, on the
same maturity date, the same amount of the foreign
currency. The Fund may realize a gain or loss from currency
transactions.
FUTURES AND OPTIONS ON FUTURES
Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a
specific security at a specified future time and at a
specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a
position in a futures contract at a specified exercise
price during the term of the option. A Fund may use futures
contracts and related options for bona fide hedging
purposes, to offset changes in the value of securities held
or expected to be acquired or be disposed of, to minimize
fluctuations in foreign currencies, or to gain exposure to
a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract
by only entering into futures contracts which are traded on
national futures exchanges.
An index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the
close of trading of the contract and the price at which the
futures contract is originally struck. No physical delivery
of the securities comprising the Index is made; generally
contracts are closed out prior to the expiration date of
the contract.
In order to avoid leveraging and related risks, when
a Fund invests in futures contracts, it will cover its
position by depositing an amount of cash or liquid
securities, equal to the market value of the futures
positions held, less margin deposits, in a segregated
account and that amount will be marked to market on a daily
basis.
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A Fund may enter into futures contracts and options
on futures contracts traded on an exchange regulated by the
Commodities Futures Trading Commission ("CFTC"),
and/or foreign exchanges and boards of trade, subject to
applicable regulations of the CFTC as long as, to the
extent that such transactions are not for "bona fide
hedging purposes," the aggregate initial margin and
premiums on such positions (excluding the amount by which
such options are in the money) do not exceed 5% of a Fund's
net assets.
There are risks associated with these activities,
including the following: (1) the success of a hedging
strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in
markets and movements in interest rates; (2) there may be
an imperfect or no correlation between the changes in
market value of the securities held by the Fund and the
prices of futures and options on futures; (3) there may not
be a liquid secondary market for a futures contract or
option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may
restrict trading in futures contracts and futures options.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at
which they are being carried on the Fund's books. Illiquid
securities include demand instruments with a demand notice
period exceeding seven days, securities for which there is
no active secondary market, and repurchase agreements with
durations over 7 days in length.
The Emerging Markets Equity Fund's Money Managers
believe that carefully selected investments in joint
ventures, cooperatives, partnerships, private placements,
unlisted securities and other similar situations
(collectively, "special situations") could enhance its
capital appreciation potential. Investments in special
situations may be illiquid, as determined by the Emerging
Markets Equity Fund's Money Managers based on criteria
approved by the Board of Trustees. To the extent these
investments are deemed illiquid, the Emerging Markets
Equity Fund's investment in them will be consistent with
its 15% restriction on investment in illiquid securities.
INVESTMENT COMPANIES
Because of restrictions on direct investment by U.S.
entities in certain countries, investment in other
investment companies may be the most practical or only
manner in which an international and global fund can invest
in the securities markets of those countries. A Fund does
not intend to invest in other investment companies unless,
in the judgment of its Money Managers, the potential
benefits of such investments exceed the associated costs
(which includes any investment advisory fees charged by the
investment companies) relative to the benefits and costs
associated with direct investments in the underlying
securities.
Investments in closed-end investment companies may
involve the payment of substantial premiums above the net
asset value of such issuers' fund securities, and are
subject to limitations under the 1940 Act. A Fund may incur
tax liability to the extent it
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invests in the stock of a foreign issuer that constitutes a
"passive foreign investment company."
JUNK BONDS
Bonds rated below investment grade are often referred to as
"junk bonds." Such securities involve greater risk of
default or price declines than investment grade securities
due to changes in the issuer's creditworthiness and the
outlook for economic growth. The market for these
securities may be less active, causing market price
volatility and limited liquidity in the secondary market.
This may limit a Fund's ability to sell such securities at
their market value. In addition, the market for these
securities may also be adversely affected by legislative
and regulatory developments. Credit quality in the junk
bond market can change suddenly and unexpectedly, and even
recently issued credit ratings may not fully reflect the
actual risks imposed by a particular security.
MONEY MARKET SECURITIES
Money market securities are high-quality dollar and
nondollar-denominated, short-term debt instruments. They
consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S. and
foreign banks; (ii) U.S. Treasury obligations and
obligations issued or guaranteed by the agencies and
instrumentalities of the U.S. Government; (iii)
high-quality commercial paper issued by U.S. and foreign
corporations; (iv) debt obligations with a maturity of one
year or less issued by corporations and governments that
issue high-quality commercial paper or similar securities;
(v) repurchase agreements involving any of the foregoing
obligations entered into with highly-rated banks and
broker-dealers; and (vi) foreign government obligations.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the
holder to a share of all interest and principal payments
from mortgages underlying the security. The mortgages
backing these securities include conventional fifteen and
thirty-year fixed-rate mortgages, graduated payment
mortgages, adjustable rate mortgages and balloon mortgages.
During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which
underlie securities purchased at a premium often results in
capital losses, while prepayment of mortgages purchased at
a discount often results in capital gains. Because of these
unpredictable prepayment characteristics, it is often not
possible to predict accurately the average life or realized
yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are
securities that are issued or guaranteed by a U.S.
Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these
mortgage-backed securities are the Government National
Mortgage Association ("GNMA"), Fannie Mae and the Federal
Home Loan Mortgage Company ("FHLMC"). Fannie Mae and FHLMC
obligations are not backed by the full faith and credit of
the U.S. Government as GNMA certificates are, but Fannie
Mae and FHLMC securities are supported by the
instrumentalities' right to borrow from the U.S. Treasury.
GNMA, Fannie Mae and FHLMC each guarantee timely
distributions of
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interest to certificate holders. GNMA and Fannie Mae also
each guarantee timely distributions of scheduled principal.
PRIVATE PASS-THROUGH SECURITIES: These are
mortgage-backed securities issued by a non-governmental
entity, such as a trust. While they are generally
structured with one or more types of credit enhancement,
private pass-through securities typically lack a guarantee
by an entity having the credit status of a governmental
agency or instrumentality.
COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS"): CMBS
are generally multi-class or pass-through securities backed
by a mortgage loan or a pool of mortgage loans secured by
commercial property, such as industrial and warehouse
properties, office buildings, retail space and shopping
malls, multifamily properties and cooperative apartments.
The commercial mortgage loans that underlie CMBS have
certain distinct characteristics. Commercial mortgage loans
are generally not amortizing or not fully amortizing. That
is, at their maturity date, repayment of the remaining
principal balance or "balloon" is due and is repaid through
the attainment of an additional loan of sale of the
property. Unlike most single family residential mortgages,
commercial real estate property loans often contain
provisions which substantially reduce the likelihood that
such securities will be prepaid. The provisions generally
impose significant prepayment penalties on loans and, in
some cases there may be prohibitions on principal
prepayments for several years following origination.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"): CMOs
are debt obligations of multiclass pass-through
certificates issued by agencies or instrumentalities of the
U.S. Government or by private originators or investors in
mortgage loans. In a CMO, series of bonds or certificates
are usually issued in multiple classes. Principal and
interest paid on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in
a variety of ways. Each class of a CMO is issued with a
specific fixed or floating coupon rate and has a stated
maturity or final distribution date.
REMICS: A REMIC is a CMO that qualifies for special
tax treatment under the Code and invests in certain
mortgages principally secured by interests in real
property. Guaranteed REMIC pass-through certificates
("REMIC Certificates") issued by Fannie Mae or FHLMC
represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae,
FHLMC or GNMA-guaranteed mortgage pass-through
certificates.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs
are usually structured with two classes that receive
specified proportions of the monthly interest and principal
payments from a pool of mortgage securities. One class may
receive all of the interest payments while the other class
may receive all of the principal payments. SMBs are
extremely sensitive to changes in interest rates because of
the impact thereon of prepayment of principal on the
underlying mortgage securities. The market for SMBs is not
as fully developed as other markets; SMBs therefore may be
illiquid.
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MORTGAGE DOLLAR ROLLS
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.
OBLIGATIONS OF SUPRANATIONAL ENTITIES
Supranational entities are entities established through the
joint participation of several governments, and include the
Asian Development Bank, the Inter-American Development
Bank, International Bank for Reconstruction and Development
(World Bank), African Development Bank, European Economic
Community, European Investment Bank and the Nordic
Investment Bank. The governmental members, or
"stockholders," usually make initial capital contributions
to the supranational entity and, in many cases, are
committed to make additional capital contributions if the
supranational entity is unable to repay its borrowings.
OPTIONS
A Fund may purchase and write put and call options on
indices or securities and enter into related closing
transactions. A put option on a security gives the
purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying
security at any time during the option period. A call
option on a security gives the purchaser of the option the
right to buy, and the writer of the option the obligation
to sell, the underlying security at any time during the
option period. The premium paid to the writer is the
consideration for undertaking the obligations under the
option contract.
Options on an index give the holder the right to
receive, upon exercise of the option, an amount of cash if
the closing level of the underlying index is greater than
(or less than, in the case of puts) the exercise price of
the option. Alternatively, a Fund may choose to terminate
an option position by entering into a closing transaction.
All settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the
index generally, rather than the price movements in
individual securities.
A Fund that may invest in the securities of a foreign
issuer may also purchase and write put and call options on
foreign currencies to manage its exposure to exchange
rates. Call options on foreign currency written by a Fund
will be "covered," which means that the Fund will own an
equal amount of the underlying foreign currency. With
respect to put options on foreign currency written by a
Fund, the Fund will establish a segregated
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account with its custodian bank consisting of cash or
liquid securities in an amount equal to the amount the Fund
would be required to pay upon exercise of the put.
All options written on indices or securities must be
covered. When a Fund writes an option or security on an
index, it will establish a segregated account containing
cash or liquid securities in an amount at least equal to
the market value of the option and will maintain the
account while the option is open, or will otherwise cover
the transaction.
RISK FACTORS. Risks associated with options
transactions include: (1) the success of a hedging strategy
may depend on an ability to predict movements in the prices
of individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of options and
the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund
will receive a premium when it writes covered call options,
it may not participate fully in a rise in the market value
of the underlying security.
PRIVATIZATIONS
Privatizations are foreign government programs for selling
all or part of the interests in government owned or
controlled enterprises. The ability of a U.S. entity to
participate in privatizations in certain foreign countries
may be limited by local law, or the terms on which the Fund
may be permitted to participate may be less advantageous
than those applicable for local investors. There can be no
assurance that foreign governments will continue to sell
their interests in companies currently owned or controlled
by them or that privatization programs will be successful.
RECEIPTS
Receipts are sold as zero coupon securities which means
that they are sold at a substantial discount and redeemed
at face value at their maturity date without interim cash
payments of interest or principal. This discount is
accreted over the life of the security, and such accretion
will constitute the income earned on the security for both
accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate
volatility than interest paying fixed income securities.
REITS
REITs are trusts that invest primarily in commercial real
estate or real estate-related loans. The value of interests
in REITs may be affected by the value of the property owned
or the quality of the mortgages held by the trust.
REPURCHASE AGREEMENTS
Arrangements by which a Fund obtains a security and
simultaneously commits to return the security to the seller
at an agreed upon price (including principal and interest)
on an agreed upon date within a number of days from the
date of purchase. Repurchase agreements are considered
loans under the 1940 Act.
SECURITIES LENDING
In order to generate additional income, a Fund may lend
securities that it owns pursuant to agreements requiring
that the loan be continuously secured by collateral
consisting of cash, securities of the U.S. Government or
its agencies equal to at least 100% of the market value of
the loaned securities. A Fund continues to receive interest
on the loaned securities while simultaneously earning
interest on the investment of cash collateral. Collateral
is marked to market daily. There may be risks of delay in
recovery of the
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securities or even loss of rights in the collateral should
the borrower of the securities fail financially or become
insolvent.
SHORT SALES
A Fund may only sell securities short "against the box." A
short sale is "against the box" if, at all times during
which the short position is open, the Fund owns at least an
equal amount of the securities or securities convertible
into, or exchangeable without further consideration for,
securities of the same issue as the securities that are
sold short.
SWAPS, CAPS, FLOORS AND COLLARS
Interest rate swaps, mortgage swaps, currency swaps and
other types of swap agreements such as caps, floors and
collars are designed to permit the purchaser to preserve a
return or spread on a particular investment or portion of
its portfolio, and to protect against any increase in the
price of securities a Fund anticipates purchasing at a
later date.
Swap agreements will tend to shift a Fund's
investment exposure from one type of investment to another.
Depending on how they are used, swap agreements may
increase or decrease the overall volatility of the Fund's
investments and their share price or yield.
U.S. GOVERNMENT AGENCY SECURITIES
Obligations issued or guaranteed by agencies of the U.S.
Government, including, among others, the Federal Farm
Credit Bank, the Federal Housing Administration and the
Small Business Administration, and obligations issued or
guaranteed by instrumentalities of the U.S. Government,
including, among others, the FHLMC, the Federal Land Banks
and the U.S. Postal Service. Some of these securities are
supported by the full faith and credit of the U.S. Treasury
(e.g., GNMA securities), others are supported by the right
of the issuer to borrow from the Treasury (e.g., Federal
Farm Credit Bank securities), while still others are
supported only by the credit of the instrumentality (e.g.,
Fannie Mae securities).
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations consist of bills, notes and bonds
issued by the U.S. Treasury as well as separately traded
interest and principal component parts of such obligations
that are transferable through the Federal book-entry
Principal Securities ("STRIPS").
U.S. TREASURY RECEIPTS
U. S. Treasury receipts are interests in separately traded
interest and principal component parts of U.S. Treasury
obligations that are issued by banks or brokerage firms and
are created by depositing U.S. Treasury notes and
obligations into a special account at a custodian bank. The
custodian holds the interest and principal payments for the
benefit of the registered owners of the certificates of
receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains
the register.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of
interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates
that are not fixed, but which vary with changes in
specified market rates or indices. The interest rates on
these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on
interest rate changes.
WARRANTS
Warrants are instruments giving holders the right, but not
the obligation, to buy equity or fixed income securities of
a company at a given price during a specified period.
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WHEN-ISSUED AND DELAYED DELIVERY SECURITIES, INCLUDING TBA MORTGAGE-BACKED
SECURITIES
When-issued or delayed delivery basis transactions involve
the purchase of an instrument with payment and delivery
taking place in the future. Delivery of and payment for
these securities may occur a month or more after the date
of the purchase commitment. A Fund will maintain a separate
account with liquid securities or cash in an amount at
least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase
date, and no interest accrues to a Fund before settlement.
YANKEE OBLIGATIONS
Yankee obligations ("Yankees") are U.S. dollar-denominated
instruments of foreign issuers who either register with the
SEC or issue under Rule 144A under the Securities Act of
1933. These obligations consist of debt securities
(including preferred or preference stock of
non-governmental issuers), certificates of deposit, fixed
time deposits and bankers' acceptances issued by foreign
banks, and debt obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international
agencies and supranational entities. Some securities issued
by foreign governments or their subdivisions, agencies and
instrumentalities may not be backed by the full faith and
credit of the foreign government.
The Yankee obligations selected for a Fund will
adhere to the same quality standards as those utilized for
the selection of domestic debt obligations.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES
Zero coupon securities are securities that are sold at a
discount to par value, and securities on which interest
payments are not made during the life of the security. Upon
maturity, the holder is entitled to receive the par value
of the security. While interest payments are not made on
such securities, holders of such securities are deemed to
have received "phantom income" annually. Because a Fund
will distribute its "phantom income" to shareholders, to
the extent that shareholders elect to receive dividends in
cash rather than reinvesting such dividends in additional
shares, the Fund will have fewer assets with which to
purchase income producing securities. Pay-in-kind
securities pay interest in either cash or additional
securities, at the issuer's option, for a specified period.
Pay-in-kind bonds, like zero coupon bonds, are designed to
give an issuer flexibility in managing cash flow.
Pay-in-kind bonds are expected to reflect the market value
of the underlying debt plus an amount representing accrued
interest since the last payment. Pay-in-kind bonds are
usually less volatile than zero coupon bonds, but more
volatile than cash pay securities. Pay-in-kind securities
are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is
entitled to receive the aggregate par value of the
securities. Deferred payment securities are securities that
remain zero coupon securities until a predetermined date,
at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals.
To avoid any leveraging concerns, the Fund will place
U.S. Government or other liquid securities in a segregated
account in an amount sufficient to cover its repurchase
obligation. Zero coupon, pay-in-kind and deferred payment
securities may be subject to greater fluctuation in value
and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash
interest at regular interest payment periods.
Additional information on permitted investments and
risk factors can be found in the Statement of Additional
Information.
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APPENDIX--DESCRIPTION OF CORPORATE BOND RATINGS ________________________________
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's bond ratings, where specified, are applied to senior bank obligations
and insurance company senior policyholder and claims obligations with an
original maturity in excess of one year. Obligations relying upon support
mechanisms such as letters-of-credit and bonds of indemnity are excluded unless
explicitly rated.
A-1
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Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating on
a bank's ability to repay senior obligations extends only to branches located in
countries which carry a Moody's sovereign rating. Such branch obligations are
rated at the lower of the bank's rating or Moody's sovereign rating for the bank
deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance company
obligations are exempt from registration under the U.S. Securities Act of 1933
or issued in conformity with any other applicable law or regulation. Nor does
Moody's represent that any specific bank or insurance company obligation is
legally enforceable or is a valid senior obligation of a rated issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
INVESTMENT GRADE
AAA
Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A
Debt rated 'A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB
Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
A-2
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SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. 'BB' indicates the least degree of speculation and 'C' the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB
Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and principal payments.
The 'BB' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BBB-' rating.
B
Debt rate 'B' has greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category
also is used for debt subordinated to senior debt that is assigned an
actual or implied 'BB' or 'BB-' rating.
CCC
Debt rated 'CCC' has a current identifiable vulnerability to default, and
is dependent on favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The 'CCC' rating
category also is used for debt subordinated to senior debt that is assigned
an actual or implied 'B' or 'B-' rating.
CC
The rating 'CC' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC' rating.
C
The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI
Debt rated 'CI' is reserved for income bonds on which no interest is being
paid.
D
Debt is rated 'D' when the issue is in payment default, or the obligor has
filed for bankruptcy. The 'D' rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during
such grace period.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA
Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA-
High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
A-3
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A+
A-
Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB+
BBB-
Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB-
Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B+
B
B-
Below investment grade and possessing risk that obligations will not be met
when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC
Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP
Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
INVESTMENT GRADE BOND
AAA
Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds rated in
the 'AAA' and 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated 'F-1+'.
A
Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
A-4
<PAGE>
SPECULATIVE GRADE BOND
BB
Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B
Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC
Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC
Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C
Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D
Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization
of the obligor. 'DDD' represents the highest potential for
recovery on these bonds, and 'D' represents the lowest potential
for recovery.
PLUS (+) MINUS (-)
Plus and minus signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the 'AAA', 'DDD',
'DD', or 'D' categories.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA
Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk substantially.
AA
Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk, albeit not very significantly.
A
Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB
Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are
more likely to lead to increased investment risk than for obligations in
other categories.
A-5
<PAGE>
BB
Obligations for which there is a possibility of investment risk developing.
Capacity for timely repayment of principal and interest exists, but is
susceptible over time to adverse changes in business, economic or financial
conditions.
B
Obligations for which investment risk exists. Timely repayment of principal
and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC
Obligations for which there is a current perceived possibility of default.
Timely repayment of principal and interest is dependent on favorable
business, economic or financial conditions.
CC
Obligations which are highly speculative or which have a high risk of
default.
C
Obligations which are currently in default.
NOTES:
"+" or "-" may be appended to a rating to denote relative status within
major rating categories.
Ratings of BB and below are assigned where it is considered that
speculative characteristics are present.
DESCRIPTION OF THOMSON BANKWATCH'S LONG-TERM DEBT RATINGS
INVESTMENT GRADE
AAA
The highest category; indicates that the ability to repay principal and
interest on a timely basis is very high.
AA
The second-highest category; indicates a superior ability to repay
principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
A
The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
BBB
The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
NON-INVESTMENT GRADE
(Issues regarded as having speculative characteristics in the likelihood of
timely repayment of principal and interest.)
BB
While not investment grade, the "BB" rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there
are significant uncertainties that could affect the ability to adequately
service debt obligations.
B
Issues rated "B" show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse developments could
well negatively affect the payment of interest and principal on a timely
basis.
CCC
Issues rated "CCC" clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.
A-6
<PAGE>
CC
"CC" is applied to issues that are subordinate to other obligations rated
"CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D
Default
Ratings in the Long-Term Debt categories may include a plus (+) or minus
(-) designation, which indicates where within the respective category the issue
is placed.
A-7
