SEI Income Portfolio. Investment Policy Statement

Transcription

1 SEI Income Portfolio Investment Policy Statement

2 INTRODUCTION An Investment Management Program will determine the right mix of investments for your personal situation in order to meet your long-term investment goals. This proposal has been prepared to assist you in this important decision. Development of a personalized Investment Management Program provides a disciplined and systematic approach to investing. It guides you in defining your personal investment objectives to determine a suitable portfolio. With all of the investment choices available, this plan helps you to evaluate the many choices and create a well-designed plan specific to your needs. The purpose of our program is to determine how your investment assets will be divided among the available investment alternatives. Your plan will usually depend on your financial objectives, time horizon, risk tolerance, and present financial situation. Over 90% of the variation in returns is due to the asset allocation of investments in your portfolio. How you allocate your investment dollars far outweighs the potential effects of security selection and market timing. This is based on the Nobel-prize winning concept of Modern Portfolio Theory - that through intelligent diversification you can help protect against many investment risks. Gains in one investment may help offset losses in another. This proposal will outline an investment plan designed to provide you with consistent, longterm performance while maintaining a risk level that is comfortable for you. I will design and implement a formal investment plan outlining your total investment picture and the approach we plan to take. Together, we will set specific investment goals and I will recommend an appropriate portfolio structure. Adopting an investment plan is a critical element in reaching your financial objectives. It should be carefully determined. And, because your individual circumstances may change from time-to-time, your plan should be reviewed and adjusted accordingly. INVESTMENT ADVISORY SERVICES How Our Services Benefit You: Highly Personalized Service Objective Review of Products and Services in the Market Exclusive Access to Institutional Programs Development of a Formal Investment Plan Including Setting Goals and Recommending a Portfolio Structure Ongoing Evaluation of Results Responsibility for Managing All Aspects of Your Investments

3 Development of an Investment Management Program Successful investing is best accomplished by helping investors first determine and then meet their investment objectives. Our investment philosophy is founded on four key principles: Asset Allocation Portfolio Structure Use of Specialist Investment Managers Continuous Portfolio Management We believe the application of this philosophy will add value by enhancing returns and reducing risk, thereby increasing the likelihood of achieving your goals. Asset Allocation Asset allocation is the central theme of our investment philosophy and the primary factor in determining investment results. Studies have shown that the asset allocation decision can explain more than 90% of the variation in total portfolio return. Therefore, how you allocate your investment dollars among the three major asset classes: stocks, bonds, and cash -- far outweighs the potential effects of which security to buy and when. Through effective asset allocation, you have the potential to earn more consistent results than with a narrowly focused, one dimensional investment program, thus smoothing the long-term ride in terms of market cycle volatility. Asset Allocation Is The Primary Factor In Performance Variability Over Time Spreading Your Risk Through Diversification Source: Brinson, Singer, and Beebower (1991) - Financial Analysts Journal, May/June 1991.

4 Portfolio Structure The stock and bond markets are composed of numerous styles and sectors (e.g. large cap value stocks, small cap growth stocks, government bonds, etc.). We will diversify your portfolio within and across these asset classes which will help you access the return potential of the financial markets, while at the same time managing your investment risk. By spreading your investments among various styles within each asset class, we further manage risk. Use of Specialist Investment Managers Once we have a fully diversified portfolio structure in place, we select specialist money managers to manage individual pieces of the portfolio. Using multiple managers is a key aspect of our approach. The more investment styles represented, the greater the diversification in your portfolio. The more diversification, the less risk for your money. For this selection process, I've chosen SEI, an industry expert in investment manager research and selection. Their rigid selection process has resulted in a team of approximately 30 of the most talented money managers in the world.

5 These specialist money managers are selected from a database of over 5,000 money managers responsible for 15,000 investment products. Managers are analyzed by performing a variety of quantitative measurements such as style analysis, risk/return analysis, and performance attribution analysis. We select specialists who adhere to a distinct investment discipline, which gives them the opportunity for greater consistency and predictability of results. This use of specialist managers is consistent with our view on diversification across and within asset classes. It is the same strategy followed by large institutional investors. These specialist money managers manage the assets of many of North America s largest corporations and wealthiest individuals. Because of the large minimums these managers require to open an account, their services are typically available only to investors who have millions of dollars to invest. By leveraging our relationship with SEI we offer you greater buying power. SEI s Manager Selection Process The manager selection process begins with extensive database searches and concludes with qualitative research and face-to-face interviews. Only the specialist managers whose investment philosophy and past performance meet the highest of standards are selected. Once chosen, these managers are continually monitored to ensure that their investment style and performance remain consistent with their objectives. Team of 30 Specialist Managers

6 Continuous Portfolio Management Your portfolio will be rebalanced regularly to assure that the target mix of assets is maintained. Rebalancing helps reduce risk while keeping your investment plan on the right course. Each manager is also constantly monitored and is subject to replacement should they fail to achieve stated goals or if they stray from their stated philosophy or process. This very controlled process should lead to more predictable results over time. You also benefit from the potential for enhanced returns due to a commitment by each specialist manager to superior security selection within their area of the market. Through SEI's direct link, online system and their team of experienced analysts, all trades all rigorously monitored. Our Alliance with SEI To implement your portfolio, we have partnered with SEI, an independent global asset management company that takes a disciplined, objective approach to investing. This approach is the same approach that pension funds use to select managers. It has been developed from their unique position in the industry and years of research on financial markets and investment managers. Previously available only to very large institutional clients, the SEI approach to asset management is now open to high-net-worth individuals and smaller institutional investors through a select network of advisory firms.

7 Investment Policy Statement The purpose of this Investment Policy Statement (the Statement ) is to establish a clear understanding between the Investor and the Investment Advisor (the Advisor ), as to the investment objectives and policies applicable to the Investor s investment portfolio (the Portfolio ). This Statement will: Establish reasonable expectations, objectives, and guidelines in the investment of the Portfolio s assets. Set forth an investment structure detailing permitted asset classes, normal allocations and permissible ranges of exposure for the Portfolio. Encourage effective communication between the Investor and the Advisor. Create a framework for a well-diversified asset mix that can be expected to generate acceptable long-term returns at a level of risk suitable to the Investor. This Statement has been developed from an evaluation of many key factors that impact the Investor s specific situation and investment objectives. This Statement is not a contract. The Statement is intended to be a summary of an investment philosophy that provides guidance to the Investor and the Advisor. INVESTMENT STRATEGY Our firm s approach to managing assets is based on the creation of an optimal asset allocation to fit your needs. We will then implement style-structured portfolios to support your required asset allocation in order to enhance investment performance while controlling risk. After our initial analysis, we have determined that the following strategy would be appropriate to allow you to take advantage of diversification across asset classes and styles offering you the potential for increased performance and reduced risk. The portfolio invests in institutional mutual funds that focus on specific segments of each asset class.

8 RECOMMENDED PORTFOLIO STRATEGY AND STRUCTURE The Income Portfolio seeks to provide a high level of current income. As a secondary objective, the Portfolio seeks to provide some growth and inflation protection through a small exposure to equities. The Portfolio is suitable for conservative investors with a short term investment time horizon of three to five years. While the Portfolio invests predominantly (80%) in Canadian fixed income securities, a small exposure (20%) to Canadian and U.S. equities is provided to provide diversification and an opportunity for some growth and inflation protection. The fixed income portion of the Portfolio invests primarily in high quality Canadian Government and Corporate bonds as well as Global fixed income securities with varying terms to maturity. Allocations to Canadian and U.S. equity securities are invested with fund managers who focus primarily on large-sized companies and some small-sized companies. Numerous specialist money managers, who employ distinct styles of fixed income and equity portfolio management, including value and growth styles, are utilized. Since styles go in and out of favour over market cycles, diversification across these styles provides broad market exposure and may reduce the volatility of returns. Income Portfolio Canadian Equity 10.0% Canadian Equity Fund 10.0% Foreign Equity 10.0% U.S. Large Company Equity Fund 5.0% U.S. MidCap Synthetic Fund 1.0% EAFE Equity Fund 4.0% Fixed Income 80.0% Canadian Fixed Income Fund 42.0% Long Duration Bond Fund 4.0% Real Return Bond Fund 11.0% Enhanced Global Bond Fund 8.0% Short Term Bond Fund 15.0%

9 Investment Performance Review of Recommended Approach Although past performance is no indication of future returns, the chart below will provide you with the historical returns of the investments being recommended to you (based on O Class units of the underlying SEI Funds net of 2.5% program fee). Historical Returns as of September 30, 2008 Annualized Returns Quarter Year to Date 1-Yr 2-Yr 3-Yr 4-Yr 5-Yr Since Inception Income Portfolio -4.9% -3.4% -2.4% -0.3% 0.2% 2.2% 2.7% 3.2% Notes: The performance shown is calculated by applying target asset allocation of the SEI Portfolio to the Underlying Funds. Actual experience of investors in the SEI Portfolio may vary from the performance shown above due to factors such as cash flow and rebalancing activities. Inception date for this SEI Portfolio is December 31, 1998 and since inception performance is calculated from this date. The indicated rates of return are the historical annual compounded total returns assuming the investment strategy recommended by the SEI Portfolio and after deduction of the fees and charges in respect of the service. The rates of return for periods of less than one year are simple rates of return. The returns are based on the historical annual compounded total returns of the underlying Funds including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder in respect of an Underlying Fund that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

10 THE PORTFOLIO The Portfolio will maintain an active asset allocation strategy. The Portfolio will be invested exclusively in SEI mutual funds. As a result, assets held in the Portfolio will be highly liquid. Investment managers are selected and monitored on the basis of the following criteria: The manager s specification of, and adherence to, a clearly articulated and appropriate investment philosophy and process. Material changes in the manager s organization and personnel. Comparison of investment performance to appropriate indices that take into account asset class and investment style. INVESTMENT INFORMATION, GUIDELINES & POLICIES The Income Portfolio seeks to provide a high level of current income. As a secondary objective, the Portfolio seeks to provide some growth and inflation protection through a small exposure to equities. Guidelines and Policies: Time Horizon The Portfolio is suitable for conservative investors with a short term investment time horizon of 3 to 5 years. Capital values do fluctuate over shorter periods and the Investor should recognize that the possibility of capital loss does exist no matter what the Investor s investment time horizon may be. However, historical asset class return data suggest that the risk of principal loss over a holding period of three years or longer can be minimized with the long-term investment mix employed by the Portfolio. Guidelines and Policies: Risk Tolerances and Performance Expectations The Investor recognizes that the objectives of the Portfolio cannot be achieved without incurring a certain amount of principal volatility. The Portfolio will be managed in a style-controlled manner that seeks to minimize principal fluctuations over the established time horizon and that is consistent with the Portfolio s stated objectives. The Investor should realize that the mutual funds comprising the Portfolio invest primarily in high quality Canadian Government and Corporate bond securities with varying terms to maturity. A modest allocation to Canadian and U.S. equity securities is invested with fund managers who focus primarily on large-sized companies and some small-sized companies. The allocation to equity securities provides both diversification and an opportunity for capital appreciation.

11 Investment managers appointed by the Investment Committee to each mutual fund employ a range of distinct portfolio management styles. Diversification across these styles provides broad market exposure and reduces the volatility of returns. Financial research has demonstrated that price volatility can be further reduced by lengthening the investment time horizon. No guarantees can be given about future performance and this Statement shall not be construed as offering such guarantee. Guidelines and Policies: Rebalancing Procedures From time-to-time, market conditions may cause the Portfolio s investments in various mutual funds to vary from the established allocation. To remain consistent with the asset allocation guidelines established by this Statement, the Portfolio will be reviewed on a regular basis and rebalanced back to the normal weighting if the actual weighting varies by 5% or more from the recommended weighting. Guidelines and Policies: Reporting Services The Investor will be provided with a comprehensive investor-reporting package. Reporting services will include Quarterly Statements of Value and Activity with Investor Performance Reports and Year End Tax Reports.

12 DUTIES AND RESPONSIBILITIES Investment Advisor: The Advisor is responsible for assisting the Investor in making an appropriate asset allocation recommendation based on the particular needs, objectives, and risk profile of the Investor. The Advisor will be available on a regular basis (but no less frequently than annually) to meet with the Investor and periodically review the Portfolio for suitability based on information provided by the Investor. The Advisor shall provide the Investor with the current prospectus for each mutual fund in the Portfolio selected. Investor: The Investor must provide the Advisor with all relevant information on financial condition, net worth, and risk tolerances. The Investor is responsible for ensuring that the information provided is complete and accurate and shall notify the Advisor promptly of any changes to this information. The Investor must understand that successful investing requires time and is in agreement to give this investment program time to work. The Investor must understand that there will be periodic adjustments made to the asset allocation and investment management recommendations and that it is important to follow the advice and recommendations in order to achieve your financial objectives. The Investor shall read and understand the information contained in the prospectus of each mutual fund in the Portfolio selected.

13 SUMMARY Strengths of Our Program The major strength of our approach is the combination of competency and monitoring that we will deliver to you in an integrated and totally bundled investment program. We will meet on a regular basis to see if any changes have impacted your investments. We will also provide you with one of the most comprehensive and easy-to-understand account reporting packages available today. You will receive a Quarterly Statement of Value and Activity with Investor Performance Report. We will help you to analyze and understand your investment results and answer any questions you may have. Fees and Expenses All expenses are fully disclosed. Our advisory fee is a fixed annual percentage of your total account size. By basing our fee arrangement on the size of your account it means that our success is based on growing your total account and making you a success. Performance information shown in this report is net of all mutual fund fees and expenses, and after the deduction of fees in respect of the portfolio. Our Commitment To You The success of any relationship depends on establishing clear commitments and expectations from the very beginning. As your Investment Advisor, here is what you can expect from me and my firm: Personalized Service Portfolio Structure Designed for Your Personalized Needs An Exclusive, Research-Based, Highly Diversified, Quality Approach Asset Allocation Providing Diversification Access to a Superior Team of Specialist Money Managers Disciplined, Continuous Money Manager Monitoring Formal Investment Policy Statement Customized Reporting Package On-going Unbiased Financial Advice For more information about SEI and the SEI Family of Mutual Funds, visit The Underlying Funds and their weightings in the SEI Portfolio are subject to change from time to time at the Manager s discretion. The portfolio managers or the allocations of assets to a particular portfolio manager are subject to change from time to time at the Manager s discretion. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments and the use of asset allocation service, such as the SEI Portfolios. Please read the prospectus of the mutual funds in which investment may be made under the SEI Portfolio before investing. The information contained herein is for general information purposes only and is not intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This communication does not constitute any offer or solicitation to residents of the U.S. or the U.K., or to anyone in a jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such a solicitation.