<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 1996
Registration No. 33-80158
811-8562
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ / /
Post-Effective Amendment No. 2 /x/
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 /x/
Insurance Investment Products Trust
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(Exact Name of Registrant as Specified in Charter)
c/o CT Corporation, 2 Oliver Street, Boston, Massachusetts 02109
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 215-254-1000
David G. Lee Copy to:
Insurance Investment Products Trust Stephen E. Roth, Esquire
680 East Swedesford Road Sutherland, Asbill & Brennan
Wayne, Pennsylvania 19087-1658 1275 Pennsylvania Avenue, N.W.
(Name and Address of Agent for Service) Washington, D.C. 20004-2404
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the Registration Statement.
DECLARATION PURSUANT TO RULE 24f-2
An indefinite amount of securities has been registered under the Securities Act
of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. The
Registrant filed a Rule 24f-2 Notice on February 22, 1996 for its most recent
fiscal year ending December 31, 1995.
--------------------
It is proposed that this filing will become effective: (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/x/ on May 1, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on _______________ pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on _______________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following box:
/ / this Post-Effective Amendment designates a new effective date for a new
effective date for a previously filed Post-Effective Amendment.
<PAGE> 2
INSURANCE INVESTMENT PRODUCTS TRUST
FORM N-1A
CROSS REFERENCE SHEET
-----------------------------------
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Introduction
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Introduction; International Growth Fund; Growth Fund; Aggressive Growth
Fund; Income Equity Fund, Intermediate Fixed Income Fund; Money Market
Fund; General Investment Policies; Investment Limitations; Fundamental
Policies; General Information; Description of Permitted Investments and
Related Risk Factors
5. Management of the Fund The Manager and Shareholder Servicing Agent; The Advisers; The
Sub-Advisers
6. Capital Stock and Other Securities Taxes; General Information
7. Purchase of Securities Being Offered How to Purchase and Redeem Shares; The Distributor
8. Redemption or Repurchase How to Purchase and Redeem Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Part B Heading in Statement
Item No. of Additional Information
- -------- -------------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Description of Shares
13. Investment Objectives and Policies International Growth Fund; Growth Fund; Aggressive Growth Fund; Income
Equity Fund; Intermediate Fixed Income Fund; Money Market Fund;
Investment Limitations; Description of Permitted Investments
14. Management of the Registrant The Manager and Shareholder Servicing Agent; The Advisers and
Sub-Advisers
15. Control Persons and Principal Control Persons and Principal Holders
Holders of Securities of Securities
16. Investment Advisory and Other Services The Manager and Shareholder Servicing Agent; The Advisers and
Sub-Advisers; Independent Public Accountants
17. Brokerage Allocation Fund Transactions
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption, and Pricing of Purchase and Redemption of Shares
Securities Being Offered
20. Tax Status Taxes
21. Underwriters Purchase and Redemption of Shares; The Distributor
22. Calculation of Performance Data Performance
23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C of this Registration
Statement.
- ii -
<PAGE> 4
INSURANCE INVESTMENT PRODUCTS TRUST
May 1, 1996
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH
GROWTH
AGGRESSIVE GROWTH
INCOME EQUITY
INTERMEDIATE FIXED INCOME
MONEY MARKET
- --------------------------------------------------------------------------------
Insurance Investment Products Trust (the "Trust") is a series type mutual fund
that is intended to be a funding vehicle for variable annuity and variable life
insurance contracts ("variable contracts") supported by separate accounts of
various life insurance companies (the "Insurers"). The Trust consists of six
professionally managed investment funds (each, a "Fund"), although one or more
Funds may not be available for investment under variable contracts offered by a
particular Insurer. A purchaser of a variable contract should refer to the
prospectus for his or her variable contract for information regarding which
Funds are available under his or her contract. Each Fund has a different
investment objective.
This Prospectus sets forth concisely the basic information about the Trust that
a prospective investor should know before investing. Investors are advised to
read this Prospectus and retain it for future reference. A Statement of
Additional Information dated May 1, 1996, as it may be amended from time to
time, has been filed with the Securities and Exchange Commission and is
available without charge through SEI Financial Management Corporation, 680 East
Swedesford Road, Wayne, PA 19087-1658 or by calling 1-800-645-8524. The
Statement of Additional Information is incorporated into this Prospectus by
reference.
The purchaser of a variable contract should read this Prospectus in conjunction
with the prospectus for his or her variable contract.
Because growth expectations for the Trust to date have not met management's
expectations, management is considering various options to recommend to the
Trust's Board of Trustees, including the liquidation of the Trust. As of the
date of this Prospectus, no action has been taken by the Board of Trustees to
liquidate the Trust.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, NOR ARE THE TRUST'S SHARES FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE TRUST'S SHARES INVOLVES RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
- iii -
<PAGE> 5
FINANCIAL HIGHLIGHTS INSURANCE INVESTMENT PRODUCTS TRUST
FOR THE PERIOD ENDED DECEMBER 31, 1995
The following information has been prepared in conjunction with the
Trust's audited financial statements for the fiscal year ended December 31,
1995, which are included in the Trust's Statement of Additional Information
under "Financial Statements." This table should be read in conjunction with the
Trust's financial statements and notes thereto.
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Intermediate
International Aggressive Income Fixed Money
Growth(1) Growth(1) Growth(1) Equity(1) Income (1) Market(2)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income (Loss) 0.17 0.07 (0.06) 0.25 0.54 0.05
Net Realized and Unrealized 1.13 3.07 4.30 2.74 0.99 ---
Gain on Securities
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.30 3.14 4.24 2.99 1.53 0.05
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
Net Investment Income (0.07) (0.07) (0.01) (0.25) (0.54) (0.05)
Realized Capital Gains (0.34) (0.40) (1.18) (0.40) (0.07) ---
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.41) (0.47) (1.19) (0.65) (0.61) (0.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.89 $12.67 $13.05 $12.34 $10.92 $1.00
===================================================================================================================================
Total Return + 13.18% 31.50% 42.87% 30.30% 15.67% 4.83%
===================================================================================================================================
Ratios/Supplemental Data
Net Assets End of Period $1,259,523 $1,537,011 $823,714 $1,535,891 $1,302,316 $599,498
Ratio of Expenses to Average
Net Assets 1.40% 1.00% 1.20% 1.00% 0.70% 0.50%
Ratio of Expenses to Average Net
Assets (Excluding Waivers and 6.39% 3.56% 3.90% 3.50% 3.32% 3.12%
Reimbursements)
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.88% 0.65% (0.61)% 2.46% 5.79% 5.36%
Ratio of Net Investment Income (Loss) to
Average Net Assets (Excluding Waivers (3.11)% (1.91)% (3.31)% (0.04)% 3.17% 2.74%
and Reimbursements)
Portfolio Turnover Rate 45% 52% 128% 47% 42% N/A
===================================================================================================================================
</TABLE>
+ Total Return is for the period indicated and has not been annualized.
(1) Commenced operations on February 10, 1995. All ratios for the period
have been annualized.
(2) Commenced operations on February 13, 1995. All ratios for the period
have been annualized.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
The Trust . . . . . . . . . . . . . . . . . . 2 How to Purchase and Redeem Shares . . . . . . 13
Investment Objectives and Policies . . . . . 2 Performance . . . . . . . . . . . . . . . . . 14
General Investment Policies . . . . . . . . . 6 Taxes . . . . . . . . . . . . . . . . . . . . 15
Investment Limitations . . . . . . . . . . . 7 General Information . . . . . . . . . . . . . 15
The Manager and Shareholder Servicing Agent . 8 Description of Permitted Investments and Related
The Advisers . . . . . . . . . . . . . . . . 8 Risk Factors . . . . . . . . . . . . . . . 18
The Sub-Advisers . . . . . . . . . . . . . . 9 Appendix . . . . . . . . . . . . . . . . . . A-1
</TABLE>
THE TRUST
Insurance Investment Products Trust (the "Trust") offers units of beneficial
interest ("shares") in series, each corresponding to one of six separate
diversified investment funds: the International Growth, Growth, Aggressive
Growth, Income Equity, Intermediate Fixed Income, and Money Market Funds (the
"Funds"). Additional information pertaining to the Trust may be obtained by
writing to SEI Financial Management Corporation, 680 East Swedesford Road,
Wayne, PA 19087-1658 or by calling 1-800-645-8524.
The Trust is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company. It currently offers its
shares only to separate accounts of Insurers as a funding vehicle for variable
contracts supported by such separate accounts. The Trust does not offer its
shares directly to the general public. It is anticipated that most separate
accounts investing in the Trust will be registered with the Securities and
Exchange Commission as unit investment trusts, a type of investment company.
Information regarding the variable contracts and the separate accounts
is contained in separate prospectuses for which the Trust assumes no
responsibility. Variable contract owners are not "shareholders" of the Trust.
Rather, each Insurer and its separate accounts are the Trust's shareholders.
However, the Trust expects that, in accordance with current law, voting rights
for the Trust's shares will be passed on to variable contract owners.
INVESTMENT
OBJECTIVES AND
POLICIES
The information below sets out the investment objectives and policies of each
Fund. There can be no assurance that any Fund will achieve its investment
objective. For additional information regarding permitted investments and
related risk factors, see "Description of Permitted Investments and Related
Risk Factors" in this prospectus and in the Statement of Additional
Information. For a description of the ratings applicable to certain permitted
investments, see the "Appendix."
INTERNATIONAL GROWTH The investment objective of the
FUND International Growth Fund is to provide
long-term capital appreciation by
investing primarily in a diversified
portfolio of equity securities of
non-U.S. issuers.
Under normal circumstances, at
least 65% of the International Growth
Fund's assets will be invested in the
following equity securities of non-U.S.
issuers: common stocks, securities
convertible into common stocks,
preferred stocks, warrants and rights
to subscribe to common stocks. At all
times at least 65% of the Fund's total
assets will be invested in securities
of issuers located in at least three
different countries other than the
United States. This Fund may also be
subject to additional diversification
requirements under state insurance law.
See "General Investment Policies."
The Fund may also enter into
forward foreign currency contracts as a
hedge against possible variations in
foreign exchange rates. A forward
foreign currency contract is a
commitment to purchase or sell a
specified currency, at a specified
future date, at a specified price. The
Fund 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
Fund, to some degree, against a
possible loss resulting from an adverse
change in the relationship between
foreign currencies and the U.S. Dollar.
The Fund also may invest in options on
currencies.
Securities of non-U.S. issuers
purchased by the Fund may be purchased
in non-U.S. markets, on United States
registered exchanges, on the
over-the-counter market or in the form
of sponsored or unsponsored American
Depositary Receipts
2
<PAGE> 7
("ADRS") traded on registered exchanges
or NASDAQ or sponsored or unsponsored
European Depositary Receipts ("EDRs"),
Continental Depositary Receipts
("CDRs") or Global Depositary Receipts
("GDRs"). The Fund will typically
invest in equity securities listed on
recognized non-U.S. exchanges, but may
also invest in securities traded in
over-the-counter markets.
The Fund expects to be fully
invested in its primary investments,
described above, but may invest up to
35% of its total assets in U.S. or
non-U.S. cash reserves; money market
instruments as described below under
"General Investment Policies"; swaps;
options on securities, non-U.S. indices
and currencies; futures contracts,
including stock index futures
contracts; and options on futures
contracts. The Fund is also permitted
to acquire variable and floating rate
securities, purchase securities on a
when-issued or delayed delivery basis
and purchase illiquid securities.
Although permitted to do so, the Fund
does not currently intend to invest in
securities issued by passive non-U.S.
investment companies.
The Fund's investment adviser is
SEI Financial Management Corporation
("SFM") and its investment sub-adviser
is Acadian Asset Management, Inc.
GROWTH FUND The investment objective of the Growth
Fund is capital appreciation.
Under normal conditions, the Fund
will invest at least 65 percent 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). The
Fund's advisers will generally select
securities of issuers believed by them
to possess significant growth
potential. Any remaining assets may be
invested in fixed-income securities or
money market instruments as defined
below under "General Investment
Policies" or in equity securities of
smaller companies that the Fund's
advisers believe are appropriate in
light of the Fund's objective. Equity
securities in which the Fund invests
include common stock, preferred stock,
warrants or rights to subscribe to
common stock and, in general, any
security that is convertible into or
exchangeable for common stock.
As a result of its investment
strategies, the Fund's annual portfolio
turnover rate is expected to be over
100%. A high turnover rate will result
in higher transaction costs.
The Fund's investment adviser is
SFM and its investment sub-advisers are
IDS Advisory Group Inc. and Alliance
Capital Management L.P.
AGGRESSIVE GROWTH The investment objective of the
FUND Aggressive Growth Fund is to provide
long-term capital appreciation by
investing primarily in equity
securities of smaller companies.
The Fund's policy is to invest in
equity securities of smaller companies
that its advisers believe are in an
early stage or transitional point in
their development and have demonstrated
or have the potential for above average
capital growth. The Fund's advisers
will select companies which have the
potential to gain market share in their
industry, achieve and maintain high and
consistent profitability or produce
increases in earnings. The Fund's
advisers also seek companies with
strong company management and superior
fundamental strength.
Under normal market conditions,
the Fund will invest at least 65% of
its total assets in the equity
securities of smaller growth companies
(i.e., market capitalizations less than
$1 billion at time of purchase). Small
capitalization companies have the
potential to show earnings growth over
time that is well above the growth rate
of the overall economy. The remaining
35% of the Fund's assets may be
invested in the equity securities of
more established companies that its
advisers believe may offer strong
capital appreciation potential due to
their relative market position,
anticipated earnings growth, changes in
management or other similar
opportunities. Equity securities in
which the Fund invests include common
stock, preferred stock, warrants and
rights to subscribe to common stock
and, in general, any security that is
convertible into or exchangeable for
common stock.
The Fund's investment adviser is
SFM and its investment sub-adviser is
currently Pilgrim Baxter & Associates,
Ltd.
On June 30, 1996, Pilgrim Baxter
will resign as the Sub-Adviser for the
Aggressive Growth Fund. At such time,
SFM may contract with another
sub-adviser to assume the portfolio
management responsibilities for the
Aggressive Growth Fund as of such date.
INCOME EQUITY The investment objective of the
FUND Income Equity Fund is long-term
growth of capital and income.
3
<PAGE> 8
The Fund invests primarily in a
diversified portfolio of high quality,
income producing common stocks which,
in the advisers' opinion, are
undervalued in the marketplace at the
time of purchase. In general, the
advisers characterize high quality
common stocks as those that have
average returns-on-equity and above
average reinvestment rates. The
Fund's advisers also consider other
factors, such as earnings and dividend
growth prospects as well as industry
outlook and market share. Under
normal conditions, the Fund will
invest at least 65 percent of its
total assets in common stocks of
companies with a market capitalization
of at least $1 billion.
The Fund's investment adviser is
SFM and its investment sub-advisers are
Mellon Equity Associates and LSV Asset
Management.
INTERMEDIATE FIXED The investment objective of the
INCOME FUND Intermediate Fixed Income Fund is
current income consistent with the
preservation of capital.
The Intermediate Fixed Income
Fund's permitted investments consist of
corporate bonds and debentures,
obligations issued by the United States
Government, its agencies and
instrumentalities, receipts involving
U.S. Treasury obligations,
collateralized mortgage obligations and
asset backed securities that are rated
AAA, AA or A by S&P or Aaa, Aa or A by
Moody's at the time of purchase or of
comparable quality (as determined by
the Fund's advisers). The Intermediate
Fixed Income Fund may invest up to 35%
of its total assets in corporate bonds
and debentures rated BBB by Standard &
Poors Corporation ("S&P") or Baa by
Moody's Investors Service, Inc.
("Moody's") at the time of purchase. In
addition, the Fund may invest in money
market instruments as described below
under "General Investment Policies."
The Fund's advisers may purchase bond
warrants in order to increase the
Fund's total return, and may purchase
interest-only and principal-only
components of mortgage-backed
securities and collateralized mortgage
obligations, mortgage rolls and Yankee
obligations. The Fund may also purchase
and sell futures, options, and options
on futures. Under normal market
conditions, the Fund will invest at
least 65% of its total assets in bonds.
Securities comprising the Fund will
have an aggregate average weighted
maturity of five to ten years. By so
limiting the maturity of its
investments, the Fund's assets are
expected to experience less price
volatility in response to changes in
interest rates than similar securities
with longer maturities.
As a result of its investment
strategies, the Fund's annual
portfolio turnover rate is expected to
exceed 100%. Such a rate, if achieved,
will lead to higher transaction costs.
The Fund's investment adviser is
SFM and its investment sub-adviser is
Western Asset Management Company.
MONEY MARKET The investment objective of the Money
FUND Market Fund is to preserve principal
value and maintain a high degree of
liquidity while providing current
income.
The Money Market Fund intends to
comply with regulations of the SEC
applicable to money market funds. These
regulations impose certain quality,
maturity and diversification restraints
on investments by the Fund. Under these
regulations, the Fund will maintain an
average maturity on a dollar-weighted
basis of 90 days or less and will
acquire only eligible securities (as
defined in the "Appendix") maturing in
397 days or less. For a further
discussion of these rules, see the
"Appendix." The Fund will use its best
efforts to maintain a constant net
asset value of $1.00 per share.
An investment in the Money Market
Fund is neither insured nor guaranteed
by the U.S. Government, and there can
be no assurance that the Money Market
Fund will be able to maintain a stable
net asset value of $1.00 per share.
The Money Market Fund invests
exclusively in (i) commercial paper
rated in the top rating category by
two or more nationally recognized
statistical rating organizations
("NRSROs"), or one NRSRO if only one
NRSRO has rated the security at the
time of investment or, if not rated,
determined by the Fund's advisers to
be of comparable quality; (ii)
obligations (including certificates of
deposit, time deposits, and bankers'
acceptances and bank notes) of U.S.
commercial banks that are members of
the Federal Reserve System or the
Federal Deposit Insurance Corporation
or savings and loan institutions,
which banks or institutions have total
assets of $500 million or more as
shown on their most recent public
financial statements at the time of
investment, provided that such
obligations are rated in the top two
short-term rating categories by two or
more NRSROs, or one NRSRO if only
4
<PAGE> 9
one NRSRO has rated the security at the
time of investment or, if not rated,
determined by the Fund's advisers to
be of comparable quality; (iii)
short-term corporate obligations rated
in the top two short-term rating
categories by an NRSRO at the time of
investment or, if not rated,
determined by the Fund's advisers to
be of comparable quality; (iv)
short-term obligations issued by state
and local governmental issuers, which
are rated, at the time of investment,
by at least two NRSROs in one of the
two highest municipal bond rating
categories, and carry yields that are
competitive with those of other types
of money market instruments of
comparable quality; (v) U.S. Treasury
obligations, obligations issued or
guaranteed as to principal and
interest by the agencies or
instrumentalities of the U.S.
government, and repurchase agreements
involving such obligations; and (vi)
U.S. dollar denominated issuers of
foreign governments including Canadian
and Provincial Government and Crown
Agency Obligations; and (vii)
repurchase agreements involving any of
such obligations.
The purchase of unrated securities
by the Fund's advisers is subject to
the approval of or ratification by the
Trustees.
The Fund's investment adviser is
Wellington Management Company.
GENERAL
INVESTMENT
POLICIES
The Aggressive Growth and the Income
Equity Funds invest in common stocks
only if those investments are listed
on registered exchanges or traded in
the over-the-counter market. Under
normal circumstances each of those
Funds, to the extent not invested in
the securities described above with
regard to their respective investment
policies, may invest in investment
grade bonds. Investment grade bonds
include securities rated BBB by S&P or
Baa by Moody's, which may be regarded
as having speculative characteristics.
In order to meet liquidity needs,
the International Growth, Growth,
Aggressive Growth, Income Equity, and
Intermediate Fixed Income Funds may
hold cash reserves and invest in "money
market instruments" (consisting of
securities issued or guaranteed by the
United States Government, its agencies
or instrumentalities, repurchase
agreements backed by such securities,
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 and
high-grade commercial paper) rated at
the time of purchase in the top two
categories by an NRSRO or determined to
be of comparable quality by the
applicable Fund's advisers at the time
of purchase, and other long and
short-term debt instruments, which are
rated at the time of purchase A or
higher by S&P or Moody's, and which,
with respect to such long-term debt
instruments, are within 397 days of
their maturity.
In addition, each of the
International Growth, Growth,
Aggressive Growth, and Income Equity
Funds may, for the purpose of realizing
additional income, lend portfolio
securities to qualified investors. The
Growth, Aggressive Growth, and Income
Equity Funds each have limited
portfolio securities lending to 20% of
a Fund's total assets.
The Growth and Income Equity Funds
may invest in receipts involving
Treasury Obligations. In addition, the
Growth, Income Equity, and Intermediate
Fixed Income Funds may also invest in
U.S. dollar denominated securities of
non-U.S. issuers (including American
Depositary Receipts that are traded on
registered exchanges or listed on
NASDAQ).
Each Fund may invest up to 15% of
its total assets, and the Money Market
Fund may invest up to 10% of its total
assets, in illiquid securities. In
addition, each Fund may purchase
restricted securities (such as Rule
144A securities and Section 4(2)
commercial paper) that are liquid in an
amount not to exceed 10% of the total
assets of the Fund. Restricted
securities are considered liquid only
if the Fund's advisers determine they
meet the criteria established by the
Board of Trustees of the Trust.
For temporary defensive purposes,
when in the opinion of its advisers
market conditions so warrant, the
International Growth Fund may invest up
to 50% of its assets in U.S. or
non-U.S. debt securities, securities
issued by, or guaranteed by, U.S. or
non-U.S. governments or the agencies
or instrumentalities of such
5
<PAGE> 10
governments, securities issued by
supranational agencies and U.S. and
non-U.S. currencies. Such U.S. and
non-U.S. debt securities will be of
comparable quality to U.S. securities
rated Baa or higher by Moody's or BBB
or higher by S&P. Securities rated Baa
or BBB may be regarded as having
speculative characteristics, are
deemed to be medium grade securities
and are regarded as having an adequate
capacity to pay interest and repay
principal.
Each of the Growth, Income Equity
and Intermediate Fixed Income Funds,
may borrow money, but none of them has
any present intention to do so.
For temporary defensive purposes,
each of the Growth, Income Equity, and
Intermediate Fixed Income Funds may,
when its respective advisers determine
that market conditions warrant, invest
up to 100% of its assets in the Money
Market Instruments described above and
in other long- and short-term debt
instruments which are rated A or higher
by S&P or Moody's at the time of
purchase, and may hold a portion of its
assets in cash.
For temporary defensive purposes,
when in the opinion of its advisers
market conditions so warrant, the
Aggressive Growth Fund may invest up to
100% of its assets in common stocks of
larger, more established companies or
in fixed income securities or the Money
Market Instruments described above.
Fixed income securities will only be
purchased if they are rated investment
grade or better.
To the extent any Fund is engaged
in temporary defensive investments,
that Fund will not be pursuing its
investment objective.
Each Fund intends to comply in all
material respects with current
insurance laws and regulations
applicable to separate accounts
investing in the Fund. This operating
policy is a non-fundamental policy
which can be changed by the Trustees at
any time. Currently, California imposes
diversification requirements on Funds
investing in non-U.S. securities.
Under these requirements, a Fund
investing at least 80% of its assets in
non-U.S. securities must be invested
in at least five countries; less than
80% but at least 60%, in at least four
countries; less than 60% but at least
40%, in at least three countries; and
less than 40% but at least 20%, in at
least two countries, except that up to
35% of a Fund's assets may be invested
in securities of issuers located in any
of the following countries: Australia,
Canada, France, Japan, the United
Kingdom or Germany. Each Fund, other
than the International Growth Fund, has
adopted a non-fundamental policy that
it will not invest more than 20% of its
assets in non-U.S. securities although
it may invest up to 35% of its assets
in securities of issuers located in the
specified countries. The International
Growth Fund intends to comply with the
California diversification
requirements, when applicable.
6
<PAGE> 11
INVESTMENT
LIMITATIONS
The investment limitations set forth
below as to each Fund, along with its
respective investment objective, are
fundamental policies of that Fund.
Fundamental policies cannot be changed
without the consent of the holders of
a majority of that Fund's outstanding
shares.
Each Fund may not:
1. Purchase securities of any issuer
(except securities issued or
guaranteed by the United States
Government, its agencies or
instrumentalities and any security
guaranteed thereby) if as a result
more than 5% of the total assets of
the Fund (based on fair market
value at the time of investment)
would be invested in the securities
of such issuer. This restriction
applies to 75% of the assets of
each Fund.
2. Purchase any securities which would
cause more than 25% of the total
assets of the Fund, based on fair
market value at the time of such
purchase, to be invested in the
securities of one or more issuers
conducting their principal business
activities in the same industry,
provided that, as to the Money
Market Fund, this limitation does
not apply to investments in (a)
domestic banks and (b) obligations
issued or guaranteed by the United
States government or its agencies
and instrumentalities. With
respect to the International Growth
Fund, for purposes of this
investment limitation,
supranational agencies are deemed
to be issuers conducting their
principal business activities in
the same industry.
The foregoing percentages will apply at
the time of the purchase of a
security. Additional investment
limitations are set forth in the
Statement of Additional Information.
THE MANAGER
AND SHAREHOLDER
SERVICING AGENT
SEI Financial Management Corporation
("SFM") provides the Trust with
overall management services,
regulatory reporting, all necessary
office space, equipment, personnel and
facilities, and acts as transfer
agent, dividend disbursing agent and
shareholder servicing agent. SFM is a
wholly-owned subsidiary of SEI
Corporation ("SEI"). Founded in 1968,
SEI is a leading provider of
investment solutions to banks,
institutional investors, investment
advisers and insurance companies. SFM
and its affiliates have provided
consultative advice to institutional
investors for more than 20 years,
including advice on selecting and
evaluating the performance of
investment advisers. As of February
29, 1996, assets for which SFM served
as manager totaled approximately $59
billion.
For its management services to the
Trust, SFM is entitled to a management
fee which is calculated daily as a
percentage of each Fund's average
daily net assets and paid monthly at
an annual rate of .55% as to the
International Growth Fund, .45% as to
each of the Aggressive Growth, Growth
and Income Equity Funds, .38% as to
the Intermediate Fixed Income Fund,
and .42% as to the Money Market Fund.
SFM has voluntarily agreed to waive a
portion of its advisory or management
fee and reimburse the Trust, if
necessary, in order to limit the total
operating expenses of each Fund. SFM
reserves the right to terminate its
voluntary fee waiver at any time in
its sole discretion.
For the fiscal year ended December
31, 1995, the Funds paid SFM, or SFM
reimbursed the Funds, the following
management fees (based on each Fund's
average daily net assets):
International Growth Fund, (4.44)%;
Aggressive Growth Fund, (2.25)%; Growth
Fund, (2.11)%; Income Equity Fund,
(2.05)%; Intermediate Fixed Income
Fund, (2.24)%; and Money Market Fund,
(2.20)%.
THE ADVISERS
SEI FINANCIAL SFM also acts as the investment adviser
MANAGEMENT CORP0RATION for each Fund of the Trust, except the
Money Market Fund for which Wellington
Management Company serves as
7
<PAGE> 12
investment adviser. As Adviser, SFM is
authorized to make investment
decisions for the assets of the Funds
for which it serves as investment
adviser. In addition, SFM has general
oversight responsibility for the
investment advisory services provided
to the Funds, including formulating
the Funds' investment policies,
analyzing economic trends affecting
the Funds, managing the allocation of
assets among the Funds' sub-advisers,
and generally directing and evaluating
the investment services provided by
the sub-advisers, including their
adherence to each Fund's respective
investment objective and policies and
each Fund's investment performance.
For these advisory services, SFM
is entitled to a fee, which is
calculated daily as a percentage of
each Fund's average daily net assets
and paid monthly at an annual rate of
.475% as to the International Growth
Fund, .65% as to the Aggressive Growth
Fund, .40% as to the Growth Fund, .35%
as to the Income Equity Fund, and .275%
as to the Intermediate Fixed Income
Fund. SFM pays the sub-advisers out of
its own revenues.
For the fiscal year ended December
31, 1995, SFM received an advisory fee
of .475% of the International Growth
Fund's average daily net assets, .65%
of the Aggressive Growth Fund's
average daily net assets, .40% of the
Growth Fund's average daily net assets,
.35% Income Equity Fund's average daily
net assets and .275% of the
Intermediate Fixed Income Fund's
average daily net assets.
SFM has received an exemptive
order from the Securities and Exchange
Commission (the "SEC") that permits SFM
to manage the Trust under a "Manager of
Managers" approach. Under the Manager
of Managers approach, SFM, with the
approval of the Trust's Board of
Trustees, may retain sub-advisers for a
Fund without submitting the
sub-advisory agreements to a vote of
the Fund's shareholders. SFM will
perform due diligence on prospective
sub-advisers; communicate performance
targets and evaluations to
sub-advisers; supervise compliance with
the Fund's investment objectives and
policies; and recommend to the Board of
Trustees whether advisory agreements
should be renewed, modified
WELLINGTON or terminated. UNDER THE MANAGER OF
MANAGEMENT COMPANY MANAGERS APPROACH, SFM WILL BE
RESPONSIBLE FOR THE INVESTMENT
PERFORMANCE OF EACH FUND. The
exemptive relief also permits the
non-disclosure of amounts payable by
SFM under such sub-advisory
agreements. The Trust will notify
shareholders in the event of any change
in the identity of the sub-adviser for
a Fund.
Wellington Management Company
("WMC") serves as investment adviser to
the Money Market Fund. WMC, is a
professional investment counseling firm
which provides investment services to
investment companies, employee benefit
plans, endowments, foundations, and
other institutions and individuals. As
of December 31, 1995, WMC had
discretionary management authority with
respect to approximately $109.2
billion of assets. WMC's predecessor
organizations have provided investment
advisory services to investment
companies since 1933 and to investment
counseling clients since 1960.
Wellington Trust Company, National
Association, a wholly-owned subsidiary
of WMC, utilizes SEI's trust accounting
services. WMC, 75 State Street,
Boston, MA 02109, is a Massachusetts
general partnership, of which the
following persons are managing
partners: Robert W. Doran, Duncan M.
McFarland and John R. Ryan.
John C. Keogh, Sr., Vice President
of WMC serves as portfolio manager to
the Money Market Fund. Mr. Keogh has
been a portfolio manager with WMC since
1983 and has served as Fund manager of
the Money Market Fund since its
inception.
WMC is entitled to a fee, which is
paid monthly at an annual rate based on
the daily net assets of the Money
Market Fund. The annual rate is set at
.075% up to $500 million and .02% on
assets over $500 million. WMC may from
time to time waive a portion of its fee
in order to limit the total operating
expenses of the Fund. WMC reserves the
right to terminate this voluntary fee
waiver at any time in its sole
discretion. For the fiscal year ended
December 31, 1995, WMC received an
advisory fee of .075%.
THE SUB-ADVISERS
In accordance with each Fund's
investment objective and policies, and
under the supervision of SFM and the
Trust's Board of Trustees, each
Sub-Adviser (each a "Sub-Adviser" and,
collectively, the "Sub-Advisers") is
responsible for the day-to-day
investment management of either the
entire or a discrete portion of the
assets of a
8
<PAGE> 13
Fund. The Sub-Advisers make investment
decisions for the Funds and place
orders on behalf of the Funds to
effect the investment decisions made.
Certain Sub-Advisers are
affiliated with banks. The
Glass-Steagall Act restricts the
securities activities of banks but
federal regulatory authorities permit
such banks to provide investment
advisory and other services to mutual
funds. Should this position be
challenged successfully in court or
reversed by legislation, the Trust
might have to make other investment
advisory arrangements for the Income
Equity Fund.
ACADIAN ASSET Acadian Asset Management, Inc.
MANAGEMENT, INC. ("Acadian") serves as Sub-Adviser to
the International Growth Fund. Acadian
is a registered investment adviser and
wholly owned subsidiary of United Asset
Management Corporation. As of December
31, 1995, Acadian managed approximately
$2.618 billion assets invested
globally. Acadian and its predecessor
entities have provided investment
management services for international
equity assets since 1977. The
principal business address of Acadian
is Two International Place, Boston,
Massachusetts 02110.
The day-to-day management of the
Fund's investments is the
responsibility of a committee composed
of individuals. No individual person is
primarily responsible for making
recommendations to that committee.
Acadian is entitled to a fee,
which is paid monthly by SFM at an
annual rate based on the market value
of investments of the International
Growth Fund. The annual rate is set at
.325% on the first $150 million, .25%
on the next $100 million, .15% on the
next $100 million and .10% on assets in
excess of $350 million.
ALLIANCE CAPITAL Alliance Capital Management L.P.
MANAGEMENT L.P. ("Alliance") serves as Sub-Adviser to a
portion of the assets of the Growth
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
("ACMLP"), an indirect wholly owned
subsidiary of The Equitable Life
Assurance Society of the United States,
is the general partner of Alliance. As
of December 31, 1995, Alliance managed
over $146 billion in assets. The
principal business address of Alliance
is 1345 Avenue of the Americas, New
York, NY 10105.
The day-to-day management of
Alliance's portion of the Fund's
investments is the responsibility of a
committee composed of investment
portfolio managers. No individual
person is primarily responsible for
making recommendations to that
Committee.
Alliance is entitled to a fee,
which is paid monthly by SFM at an
annual rate of .25% of the market value
of investments of that portion of the
Growth Fund which Alliance manages.
Alliance may from time to time waive a
portion of its fee in order to limit
the total operating expenses of the
Fund. Alliance reserves the right to
terminate its voluntary fee waiver at
any time in its sole discretion. For
the fiscal year ended December 31,
1995, Alliance received a sub-advisory
fee of .25%.
IDS ADVISORY GROUP IDS Advisory Group Inc. ("IDS") serves
INC. as Sub-Adviser to a portion of the
assets of the Growth Fund. IDS is a
registered investment adviser and
wholly owned subsidiary of IDS
Financial Corporation. As of December
31, 1995, IDS managed over $24.4
billion in assets with $6.5 billion of
this total in large capitalization
growth domestic equities. IDS was
founded in 1972 to manage tax-exempt
assets for institutional clients. The
principal business address of IDS is
IDS Tower 10, Minneapolis, MN 55440.
The day-to-day management of IDS'
portion of the Fund's investments is
the responsibility of a committee
composed of the eight investment
portfolio managers of the equity
investment team. No individual person
is primarily responsible for making
recommendations to that committee.
IDS is entitled to a fee, which is
paid monthly by SFM at an annual rate
of .25% of the market value of
investments of that portion of the
Growth Fund which IDS manages. IDS may
from time to time waive a portion of
its fee in order to limit
9
<PAGE> 14
the total operating expenses of the
Fund. IDS reserves the right to
terminate its voluntary fee waiver at
any time in its sole discretion.
LSV ASSET LSV Asset Management ("LSV") serves as
MANAGEMENT Sub-Adviser to a portion of the assets
of the Income Equity Fund. LSV is a
registered investment adviser organized
as a Delaware general partnership in
which an affiliate of SFM owns a
majority interest. The general partners
of LSV have developed quantitative
value analysis methodology and software
which has been used to manage assets
over the past 5 years. Although LSV has
never managed investment companies, the
portfolio identified by the model has
been implemented by three institutional
clients with aggregate assets invested
of approximately $455 million including
$15 million in a portfolio of U.S.
securities. The principal business
address of LSV is 181 W. Madison
Avenue, Chicago, IL 60602.
Investment decisions are made by
the quantitative computer model. Josef
Lakonishok, Andrei Shleifer and Robert
Vishny, officers of LSV, will on a
continuous basis monitor the
quantitative analysis model and based
on their ongoing research and
statistical analysis make adjustments
to the model. Securities are identified
for purchase or sale by the portfolio
based upon the computer model and
defined variance tolerances. Purchases
and sales are effected by LSV based
upon the output from the model.
LSV is entitled to a fee, which is
paid monthly by SFM at an annual rate
of .20% of the market value of
investments of that portion of the
Income Equity Fund which LSV manages.
MELLON EQUITY Mellon Equity Associates ("MEA")
ASSOCIATES serves as Sub-Adviser to a portion of
the assets of the Income Equity Fund.
MEA is a registered investment adviser.
MEA is a Pennsylvania business trust
founded in 1987, whose beneficial
owners are Mellon Bank, N.A. and MMIP,
Inc. MEA focuses on the equity and
balanced pension, public fund and
profit-sharing investment management
markets. As of December 31, 1995, MEA
had discretionary management authority
with respect to approximately $8.8
billion of assets. The principal
business address of Mellon is 500 Grant
Street, Suite 3700, Pittsburgh, PA
15258.
William P. Rydell, CFA and
President and Chief Executive Officer
of MEA, and Robert A. Wilk, CFA and
Senior Vice President of MEA, each
serve as portfolio managers to the
Income Equity Fund. Mr. Rydell began
his career with Mellon Bank in 1973 and
has been associated with MEA since its
inception in 1987. Mr. Wilk has been
associated with MEA since April, 1990.
Prior to 1990, Mr. Wilk was in charge
of portfolio management and involved in
quantitative research for another of
Mellon's investment subsidiaries,
Triangle Portfolio Associates. Both Mr.
Rydell and Mr. Wilk have served as
portfolio managers of the Income Equity
Fund since its inception.
MEA is entitled to a fee, which
is paid monthly by SFM at an annual
rate of .20% of the market value of
investments of that portion of the
Income Equity Fund which MEA manages.
For the fiscal year ended December 31,
1995, MEA received a sub-advisory fee
of .20%.
PILGRIM BAXTER & Pilgrim Baxter & Associates, Ltd.
ASSOCIATES, LTD. ("Pilgrim Baxter") serves as
Sub-Adviser to the Aggressive Growth
Fund. Pilgrim Baxter is a professional
investment advisory firm which provides
investment services to pension and
profit-sharing plans, other
institutions and investment companies
since November, 1982. As of December
31, 1995, Pilgrim Baxter had
discretionary management authority with
respect to approximately $7 billion of
assets. The principal business address
of Pilgrim Baxter is 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania
19087. Pilgrim Baxter is an indirect
wholly owned subsidiary of United Asset
Management.
John F. Force, CFA, joined Pilgrim
Baxter in January 1993 and is a
portfolio Manager/Analyst. Prior to
joining Pilgrim Baxter, Mr. Force was
Vice President/Portfolio Manager at
Fiduciary Management Associates from
July 1987 to September 1992. Mr. Force
has served as portfolio manager of the
Aggressive Growth Fund since its
inception.
Pilgrim Baxter is entitled to a
fee, which is paid monthly by SFM at an
annual rate of .50% of the daily net
assets of the Aggressive Growth Fund.
On June 30, 1996, Pilgrim Baxter will
resign as the Sub-Adviser for the
Aggressive
10
<PAGE> 15
Growth Fund. At such time, SFM may
contract with another sub-adviser to
assume the portfolio management
responsibilities for the Aggressive
Growth Fund as of such date. For the
fiscal year ended December 31, 1995,
Pilgrim Baxter received a sub-advisory
fee of .50%.
WESTERN ASSET Western Asset Management Company
MANAGEMENT ("Western") serves as Sub-Adviser to
COMPANY the Intermediate Fixed Income Fund.
Western was founded in 1971 and
specializes in the management of fixed
income portfolios. Western is located
at 117 East Colorado Boulevard,
Pasadena, California 91105 and is a
wholly-owned subsidiary of Legg Mason,
Inc., a financial services company
located in Baltimore, Maryland. As of
December 31, 1995, Western managed
approximately $19 billion in client
assets, including $3 billion of
investment company assets.
Kent S. Engel, Director and Chief
Investment Officer of Western, is
primarily responsible for the
day-to-day investment decisions made
with respect to the Fund. Mr. Engel
has been with Western and its
predecessor since 1969, and has been
the portfolio manager of the
Intermediate Fixed Income Fund since
its inception.
Western is entitled to a fee,
which is paid monthly by SFM at an
annual rate of .125% of the daily net
assets of the Intermediate Fixed Income
Fund. For the fiscal year ended
December 31, 1995, Western received a
sub-advisory fee of .125%.
HOW TO PURCHASE
AND REDEEM
SHARES
Shares of the Trust may be purchased
only by Insurers and their separate
accounts. Individuals and variable
contract owners may not place purchase
or redemption orders with the Trust. A
variable contract purchaser should
refer to the prospectus for his or her
contract for more information on the
availability of specific Funds as
investment options and his or her
investment, redemption and surrender
rights under the contract.
Insurers place purchase and
redemption orders for shares of Funds
of the Trust based on aggregating and
netting premiums and redemption and
other transaction requests received and
charges deducted in their
administration of the variable
contracts and their separate accounts.
A purchase order for shares of a Fund
for a separate account will be effected
at the net asset value determined for a
given business day if the order and
federal funds in the purchase amount
are received by the Trust on the next
business day in accordance with its
procedures. A redemption order for
shares of a Fund for a separate account
will be effected at the net asset value
determined for a given business day if
the order is received by the Trust on
the next business day in accordance
with its procedures.
A "business day" is a day on which
the New York Stock Exchange is open for
business. However, shares of the Money
Market Fund cannot be purchased by
Federal Reserve wire on Federal
holidays restricting wire transfers.
No share certificates will be
issued when shares are purchased. It is
currently the Trust's policy to pay all
redemptions in cash, although the Trust
retains the right to satisfy a
redemption request for a Fund in whole
or in part by a distribution in kind of
readily marketable securities held by
the Fund. The Trust ordinarily will
make payment for all shares redeemed
within seven days after receipt by the
Trust or its transfer agent of a
satisfactory redemption request, except
as provided by rules of the SEC.
PERFORMANCE
From time to time, in advertisements,
sales literature, or reports to
shareholders, the "current yield" and
"effective compound yield" of the
Money Market Fund may be quoted.
These figures are based on historical
earnings and are not intended to
indicate future performance. The
"current yield" of the Money Market
Fund refers to the income generated by
an investment over a seven-day period
which is then "annualized." That is,
the amount of income generated by the
investment during that week is assumed
to be generated each week over a
52-week period and is shown as a
percentage of the investment. The
"effective yield" is calculated
similarly but,
11
<PAGE> 16
when annualized, the income earned by
an investment in the Money Market Fund
is assumed to be reinvested. The
"effective yield" will be slightly
higher than the "current yield"
because of the compounding effect of
this assumed reinvestment.
From time to time, the yield and
total return of any Fund, other than
the Money Market Fund, may be quoted in
advertisements, sales literature, or
reports to shareholders. These figures
are based on historical earnings and
are not intended to indicate future
performance. No representation can be
made concerning actual future yields or
returns. The yield of a Fund (other
than the Money Market Fund) refers to
the income generated by a hypothetical
investment in such Fund over a 30-day
period. This income is then
"annualized," i.e., the income over
thirty days is assumed to be generated
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's performance may
periodically be compared to that of
other mutual funds tracked by mutual
funds rating services (such as Lipper
Analytical), financial and business
publications and periodicals, broad
groups of comparable mutual funds or
unmanaged indices which may assume
investment of dividends but generally
do not reflect deductions for
administrative and management costs or
to other investment alternatives.
Morningstar, Inc., a service that ranks
mutual funds on the basis of
risk-adjusted performance, may be
quoted. Long-term performance of
capital markets may be used to
demonstrate general long-term risk
versus reward scenarios, and this use
could include the value of a
hypothetical investment in any of the
capital markets. Financial and business
publications and periodicals as they
relate to fund management, investment
philosophy, and investment techniques
may also be quoted.
Performance data may be used from
time to time in advertising or
marketing the Trust's shares, including
data from Lipper Analytical Services,
Inc., IBC/Donoghue's Money Fund Report,
Financial Planning Magazine, Standard &
Poor's Indices, Dow Jones Industrial
Averages, VARDS, Bank Rate Monitor, and
other industry publications. Other
sources of performance data are set
forth in the Statement of Additional
Information.
Various measures of volatility and
benchmark correlation with respect to a
Fund may be quoted in advertising,
sales literature, and reports to
shareholders and these measures may be
compared 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
Each Fund intends to qualify and to
continue to qualify as a regulated
investment company under Subchapter M
of the Internal Revenue Code of 1986,
as amended ("Code"). As such, a Fund
will not be subject to Federal income
tax on that part of its investment
company taxable income (consisting
generally of net investment income,
net gains from certain foreign
currency transactions, and net
short-term capital gain, if any) and
any net capital gain (the excess of
net long-term capital gain over net
short-term capital loss) that it
distributes to its shareholders. It is
the intention of each Fund to
distribute all such income and gains.
Fund shares are offered only to
separate accounts of Insurers (which
are insurance company separate accounts
that fund the variable contracts). For
a discussion of the taxation of life
insurance companies and the separate
accounts, as well as the tax treatment
of the variable contracts and the
holders thereof, see the discussion
regarding tax matters included in the
prospectus for the variable contracts
under consideration.
Each Fund intends to comply with
the diversification requirements
imposed by Section 817(h) of the Code
and the regulations thereunder. These
requirements are in addition to the
diversification requirements imposed on
each Fund by Subchapter M of the Code
and the 1940 Act. These requirements
place certain limitations on the assets
of each separate account that may be
invested in securities
12
<PAGE> 17
of a single issuer, and, because
Section 817(h) and the regulations
thereunder treat a Fund's assets as
assets of the related separate
account, these limitations also apply
to the Fund's assets that may be
invested in securities of a single
issuer. Generally, the regulations
provide that, as of the end of each
calendar quarter, or within 30 days
thereafter, no more than 55% of a
Fund's total assets may be represented
by any one investment, no more than
70% by any two investments, no more
than 80% by any three investments, and
no more than 90% by any four
investments. Failure of a Fund to
satisfy the Section 817(h)
requirements could result in adverse
tax consequences to the Insurers and
holders of variable contracts.
The foregoing is only a summary of
some of the important Federal income
tax considerations generally affecting
the Funds and their shareholders; see
the Statement of Additional Information
for a more detailed discussion.
Prospective investors are urged to
consult their tax advisers.
GENERAL
INFORMATION
The Trust The Trust was organized as a
Massachusetts business trust under a
Declaration of Trust dated June 3,
1994. The Declaration of Trust permits
the Trust to offer separate series of
shares, each corresponding to a
separate Fund, and, as to each series,
different classes of shares. All
consideration received by the Trust for
shares of any Fund and all assets of
such Fund belong to that Fund and would
be subject to liabilities related
thereto.
Trust Expenses The Trust pays its expenses, including
fees of its service providers, audit
and legal expenses, expenses of
preparing prospectuses, proxy
solicitation material and reports to
shareholders, costs of custodial
services and registering the shares
under federal and any applicable state
securities laws, pricing, insurance
expenses, litigation and other
extraordinary expenses, brokerage
costs, interest charges, taxes and
organization expenses.
The Trust has been informed that
certain owners of variable contracts
supported by the Trust may obtain asset
allocation services with respect to the
allocation of their contract values
among the Funds. If a sufficient amount
of a Fund's assets are subject to such
asset allocation services, the Fund may
incur higher transaction costs and a
higher portfolio turnover rate than
would otherwise be anticipated as a
result of redemptions and purchases of
Fund shares pursuant to such services.
Trustees of the The management and affairs of the
Trust Trust are supervised by the Trustees
under the laws governing business
trusts in the Commonwealth of
Massachusetts. The Trustees have
approved contracts under which, as
described above, certain companies
provide essential management services
to the Trust.
Voting Rights Each share held entitles the
shareholder of record to one vote. Each
Fund will vote separately on matters
relating solely to that Fund. 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. In accordance with current
law, the Trust anticipates that an
Insurer whose separate accounts invest
in a Fund will request voting
instructions from the owners of
variable contracts supported by the
accounts and will vote shares in
proportion to the voting instructions
received. For further information on
voting rights, see the prospectus for
the variable contracts under
consideration.
Availability of Currently, shares of the Trust are
Shares being offered only to variable annuity
separate accounts of the Insurers.
Shares of the Trust in the future may
be sold to separate accounts
established to receive and invest
purchase payments received under
variable life insurance policies. If
Trust shares are sold to such variable
life insurance separate accounts, it is
conceivable that, in the future, it may
become disadvantageous for variable
life insurance separate accounts and
variable annuity
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<PAGE> 18
separate accounts to invest in the
Trust simultaneously. Although the
Trust does not currently foresee any
such disadvantages, either to variable
life insurance policyowners or to
variable annuity contractowners, if
shares are sold to both types of
separate accounts, the Trustees of the
Trust intend to monitor events in
order to identify any material
conflicts between the variable life
policyowners and the variable annuity
contractowners and to determine what
actions, if any, should be taken in
response thereto. Such action could
include the redemption of shares by
one or more of the separate accounts,
which could have adverse consequences.
Material conflicts could result from,
for example: (1) changes in state
insurance laws; (2) changes in federal
income tax laws; or (3) differences in
voting instructions between those
given by variable life insurance
policyowners and those given by
variable annuity contractowners. If,
in such circumstances, the Trustees of
the Trust were to conclude that
separate funds should be established
for variable life and variable annuity
separate accounts, variable life
insurance policyowners and variable
annuity contractowners would no longer
have the economies of scale resulting
from a larger combined fund.
Reporting The Trust issues unaudited financial
information semiannually and audited
financial statements annually.
Inquiries Inquiries should be directed to SEI
Financial Management Corporation, 680
E. Swedesford Road, Wayne,
Pennsylvania, 19087.
Dividends The International Growth Fund
periodically declares and pays its net
investment income (inclusive of
short-term capital gains) as a
dividend.
Each of the Growth, Income Equity
and Intermediate Fixed Income Funds
distributes substantially all of its
net investment income (exclusive of
capital gains) in the form of monthly
dividends. Shareholders of record on
the last Business Day of each month
will be entitled to receive the monthly
dividend distribution, which is
generally paid on the 10th Business Day
of the following month.
The Aggressive Growth Fund
distributes substantially all of its
net investment income (exclusive of
capital gains) in the form of quarterly
dividends. Shareholders of record on
the last Business Day of each quarter
will be entitled to receive the
quarterly dividend distribution, which
is generally paid on the 10th Business
Day of the following month.
The Money Market Fund determines
and declares net investment income
(exclusive of capital gains) on each
Business Day as a dividend for
shareholders of record as of the close
of business on that day. The Money
Market Fund pays dividends in
additional shares on the first Business
Day of each month (unless the
shareholder requests payment in Federal
Funds). Currently, the Money Market
Fund's capital gains, if any, are
distributed at the end of the calendar
year.
With respect to each Fund other
than the Money Market Fund, any net
capital gains (the excess of net
long-term capital gain over net
short-term capital loss) realized by a
Fund, if any, will be distributed to
that Fund's shareholders at least
annually. Shareholders of each of those
Funds automatically receive all income
dividends and capital gain
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 the Manager at least
15 days prior to the payment of
dividends or capital gains.
As to each Fund other than the
Money Market Fund, dividends and
distributions are paid on a per-share
basis. The value of each share will be
reduced by the amount of any such
payment.
Counsel and Independent Sutherland Asbill & Brennan serves as
Accountants counsel to the Trust. Arthur Andersen
LLP serves as the independent
auditor of the Trust.
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<PAGE> 19
The Distributor SEI Financial Services Company (the
"Distributor"), a wholly-owned
subsidiary of SEI, serves as the
principal underwriter of the Trust's
shares. The Distributor is located at
680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.
Custodians and Wire State Street Bank and Trust Company,
Agent 225 Franklin Street, Boston, MA 02110,
serves as custodian of the assets of
the International Growth Fund.
CoreStates Bank, N.A., Broad and
Chestnut Streets, P.O. Box 7618,
Philadelphia, PA 19101, acts as
custodian of the assets of each Fund
except the International Growth Fund
and as wire agent of each Fund. Each
custodian holds cash, securities and
other assets of the Funds for which it
acts as custodian, as required by the
Investment Company Act of 1940, as
amended.
DESCRIPTION OF
PERMITTED
INVESTMENTS AND
RELATED
RISK FACTORS
The following is a description of
certain of the permitted investments
and related risk factors for the
Funds:
American Depositary The International Growth, Growth, and
Receipts ("ADRs"), Income Equity Funds may invest in ADRs
European Depositary and the International Growth Fund may
Receipts ("EDRs") invest in EDRs, Continental Depositary
and Receipts ("CDRs") and GDRs. ADRs are
Global Depositary securities typically issued by a U.S.
Receipts ("GDRs") financial institution (a
"Depositary"), that evidence
ownership interests in a security
or a pool of securities issued
by a non-U.S. issuer and deposited
with the depositary. ADRs include
American Depositary Shares and
New York Shares. EDRs, which are
sometimes referred to as 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 non-U.S. 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 markets and GDRs
are designed for trading in non-U.S.
securities markets. ADRs, EDRs, CDRs
and GDRs may present different risks
than those attendant to investments in
securities of U.S. issuers. These risks
include differences in accounting,
auditing and financial reporting
standards, the possibility of
expropriation or confiscatory taxation,
and political instability.
ADRs, EDRs and CDRs 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. Although the International
Growth, Growth, and Income Equity Funds
expect to invest primarily in sponsored
depositary receipts, some depositary
receipts in which they invest may be
unsponsored. Unlike the holder of a
sponsored depositary receipt, the
holder of an unsponsored depositary
receipt generally bears all the costs
of the unsponsored facility. The
depositary of an unsponsored facility
frequently is under no obligation to
distribute shareholder communications
received from the issuer of the
deposited security or to pass through
to the holders of the receipts voting
rights with respect to the deposited
securities.
Asset Backed Securities The Intermediate Fixed Income Fund may
(Non-Mortgage) invest in Asset Backed Securities. This
category of permitted investments
consists of securities secured by
company receivables, truck and
automobile 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
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<PAGE> 20
obligations and are generally issued as
the debt of a special purpose entity,
such as a trust, organized solely for
purpose of owning such assets and
issuing such debt.
Bankers' Acceptances All of the Funds may invest in bankers
acceptances, which are bills of
exchange or time drafts drawn on and
accepted by a commercial bank. Bankers'
acceptances are used by corporations to
finance the shipment and storage of
goods and to furnish dollar exchange.
Maturities are generally six months or
less.
Certificates of Deposit All of the Funds may invest in
Certificates of Deposit, which are
negotiable interest bearing instruments
with a specific short-term maturity.
Certificates of deposit are issued by
banks and savings and loan institutions
in exchange for the deposit of funds
and normally can be traded in the
secondary market prior to maturity.
Certificates of Deposit have penalties
for early withdrawal.
Commercial Paper All of the Funds may invest in
commercial paper. The term is used to
designate unsecured short-term
promissory notes issued by corporations
and other entities. Maturities on these
issues vary from a few days to nine
months. Section 4(2) commercial paper
is issued in reliance on an exemption
from registration under Section 4(2) of
the Act and is generally sold to
institutional investors who purchase
for investment. Any resale of such
commercial paper must be an exempt
transaction, usually to an
institutional investor through the
issuer or investment dealers who make a
market in such commercial paper.
Common Stocks See "Equity Securities."
Convertible Securities All of the Funds except the
Intermediate Fixed Income and Money
Market Funds may invest in convertible
securities, which have characteristics
similar to both fixed income and equity
securities. Because of the conversion
feature, the market value of
convertible securities tends to move
together with the market value of the
underlying stock. As a result, a Fund's
selection of convertible securities is
based, to a great extent, on the
potential for capital appreciation that
may exist in the underlying stock. The
value of convertible securities is also
affected by prevailing interest rates,
the credit quality of the issuer, and
any call provisions. Convertible
securities in which the Aggressive
Growth Fund may invest include warrants
and rights convertible into common
stock.
Demand Instruments The International Growth and Money
Market Funds may invest in Demand
Instruments, which are certain
instruments that involve a conditional
or unconditional demand feature and may
include variable amount master demand
notes.
Equity Securities The International Growth, Growth,
Aggressive Growth, and Income Equity
Funds invest in equity securities.
Investments in equity securities in
general are subject to market risks
that may cause their prices to
fluctuate over time. Fluctuations in
the value of equity securities in which
each of the International Growth,
Growth, Aggressive Growth, and Income
Equity Funds invests will cause the net
asset value of the applicable Fund to
fluctuate. The risk of price
volatility is greater for smaller
companies, such as those in which the
Aggressive Growth Fund invests, than
for larger, more established companies,
due to the greater business risks of
small size, limited markets and
financial resources, narrow product
lines and the frequent lack of depth of
management. The securities of small
companies are often traded
over-the-counter and may not be traded
in volumes typical on a national
securities exchange. Consequently, the
securities of smaller companies may
have limited market stability and may
be subject to more abrupt or erratic
market movements than securities of
larger, more established growth
companies or the market averages in
general. The Fund will attempt to
reduce the volatility of its share
price by diversifying its investments
among many companies and different
industries. An investment in
the International Growth, Growth,
Aggressive Growth, or Income Equity
Fund may be more suitable for long-term
investors who can bear the risk of
16
<PAGE> 21
short-term fluctuations. 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 The International Growth, Intermediate
Fixed Income and Money Market Funds may
invest in fixed income securities.
Interest rates will affect the market
value of fixed income investments made
by the Funds. 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. Changes by an NRSRO in the
ratings of any fixed income security
and in the ability of an issuer to make
payments of interest and principal may
also affect the value of these
investments. Changes in the value of
portfolio securities will not affect
cash income derived from these
securities, but will affect the
applicable Fund's net asset value.
Forward Foreign The International Growth Fund may
Currency Contracts conduct its foreign currency exchange
transactions on a spot (i.e., cash)
basis at the spot rate prevailing in
the foreign currency exchange market or
through entering into forward contracts
to protect against uncertainty in the
level of future exchange rates between
a particular foreign currency and the
U.S. Dollar or between foreign
currencies in which the Fund's
securities are or may be denominated. A
forward foreign currency contract
involves an obligation to purchase or
sell a specific currency amount at a
future date, which may be any fixed
number of days from the date of the
contract, agreed upon by the parties,
at a price set at the time of the
contract. Under normal circumstances,
consideration of the prospect for
changes in currency exchange rates will
be incorporated into the International
Growth Fund's long-term investment
strategies. However, the Fund's
advisers believe that it is important
to have the flexibility to enter into
forward foreign currency contracts when
they determine that the best interests
of the Fund will be served.
The International Growth Fund will
convert currency on a spot basis from
time to time, and investors should be
aware of the costs of currency
conversion.
When the Fund's advisers believe
that the currency of a particular
country may suffer a significant
decline against the U.S. Dollar or
against another currency, the Fund may
enter into a currency 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
foreign contract, the International
Growth Fund may either sell a portfolio
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.
Generally, the International
Growth Fund will enter into forward
foreign currency contracts only as a
hedge against foreign currency exposure
affecting the Fund. If the
International Growth Fund enters into
forward foreign currency contracts to
cover activities which are essentially
speculative, the Fund will segregate
cash or readily marketable securities
with its custodian, or a designated
subcustodian, in an amount at all times
equal to or exceeding the Fund's
commitment with respect to such
contracts.
By entering into forward foreign
currency contracts, the International
Growth Fund, which invests primarily in
non-U.S. securities, will seek to
protect the value of its investment
securities against a decline in the
value of a currency. However, these
forward foreign currency contracts will
not eliminate fluctuations in the
underlying prices of the securities.
Rather, they simply establish a rate of
exchange which one can achieve at some
future point in time. Additionally,
although such contracts tend to
minimize the risk of loss due to a
decline in the value of the hedged
currency, at the same time, they tend
to limit any potential gain which might
result should the value of such
currency increase.
Futures Contracts and The International Growth Fund may
Options on Futures enter into contracts for the purchase
Contracts or sale of securities, including
index contracts or foreign currencies.
A purchase of a futures contract means
the acquisition of a contractual right
to obtain delivery to the
International Growth Fund of the
securities or foreign currency called
for by the
17
<PAGE> 22
contract at a specified price during a
specified future month. When a futures
contract on securities or currency is
sold, the Fund incurs a contractual
obligation to deliver the securities
or foreign currency underlying the
contract at a specified future month.
The Fund may sell stock index futures
contracts in anticipation of, or
during, a market decline to attempt to
offset the decrease in market value of
its common stocks that might otherwise
result; and it may purchase such
contracts in order to offset increases
in the cost of common stocks that it
intends to purchase. The International
Growth Fund may enter into futures
contracts and options thereon to the
extent that not more than 5% of the
Fund's assets are required as futures
contract margin deposits and premiums
on options and may engage in futures
contracts to the extent that
obligations relating to such futures
contracts represent not more than 20%
of the International Growth Fund's
total assets.
The International Growth Fund may
also purchase and write options to buy
or sell futures contracts. The
International Growth Fund may write
options on futures only on a covered
basis. Options on futures are similar
to options on securities except that
options on futures give the purchaser
the right, in return for the premium
paid, to assume a position in a futures
contract, rather than actually to
purchase or sell the futures contract,
at a specified exercise price at any
time during the period of the option.
When the International Growth Fund
enters into a futures transaction it
must deliver to the futures commission
merchant selected by the Fund, an
amount referred to as "initial margin."
This amount is maintained by the
futures commission merchant in a
segregated account at the custodian
bank. Thereafter, a "variation margin"
may be paid by the International Growth
Fund to, or drawn by the Fund from,
such account in accordance with
controls set for such accounts,
depending upon changes in the price of
the underlying securities subject to
the futures contract.
The International Growth Fund will
enter into such futures and options on
futures transactions on domestic
exchanges and, to the extent such
transactions have been approved by the
Commodity Futures Trading Commission
("CFTC"), for sale to customers in the
U.S., on non-U.S. exchanges.
The Intermediate Fixed Income Fund
may enter into futures contracts and
options on futures contracts traded on
an exchange regulated by the CFTC, so
long as, to the extent that such
transactions are not for "bona fide
hedging purposes," the aggregate and
initial margin and premiums on such
positions (excluding the amount by
which such options are in the money) do
not exceed 5% of the Intermediate Fixed
Income Fund's net assets. The
Intermediate Fixed Income Fund may buy
and sell futures contracts and related
options to manage its exposure to
changing interest rates and securities
prices. Some strategies reduce the
Fund's exposure to price fluctuations,
while others tend to increase its
market exposure. Futures and options on
futures can be volatile instruments and
involve certain risks that could
negatively impact the Fund's return.
Illiquid Securities Illiquid securities are securities that
may not be sold or disposed of in the
ordinary course of business within
seven business days at approximately
the value at which they are being
carried on the Fund's books. An
illiquid security includes repurchase
agreements which have a maturity of
longer than seven days, other
securities that are illiquid by virtue
of the absence of a readily available
market, and demand instruments with a
demand notice period exceeding seven
days, if there is no secondary market
for such securities. Illiquid
securities include securities that are
not registered under the 1933 Act.
However, unregistered securities that
can be sold to "qualified institutional
buyers" in accordance with Rule 144A
under the 1933 Act (such as Section
4(2) commercial paper) will not be
considered illiquid so long as it is
determined by the applicable Fund's
advisers, acting under guidelines
approved and monitored by the Board,
that an adequate trading market exists
for that security. This investment
practice could have the effect of
increasing the level of illiquidity in
a Fund during any period that qualified
institutional buyers become
uninterested in purchasing Rule 144A
securities. The ability to sell to
qualified institutional buyers under
Rule 144A is a recent development, and
it is not possible to predict how this
market will develop.
Mortgage-Backed Securities The Intermediate Fixed Income Fund may
invest in mortgage-backed securities,
including collateralized mortgage
obligations ("CMOs"). The mortgages
backing these securities include
conventional thirty-year fixed rate
mortgages, graduated payment mortgages,
and adjustable rate mortgages. However,
any guarantees of
18
<PAGE> 23
the mortgages do not extend to the
mortgage-backed securities' value,
which is likely to vary inversely with
fluctuations in interest rates.
Mortgage-backed securities are in most
cases "pass-through" instruments,
through which the holder receives a
share of all interest and principal
payments from the mortgages underlying
the certificate. Unless the context
indicates otherwise, all references
herein to CMOs include multi-class,
pass-through securities. Payments of
principal of and interest on the
underlying mortgage assets, and any
reinvestment income thereon, provide
the funds to pay debt service on the
CMOs or make scheduled distribution on
the multi-class pass-through
securities.
In a CMO, a series of bonds or
certificates are usually issued in
multiple classes. Each class of CMOs,
often referred to as a "tranche," is
issued with a specific fixed or
floating coupon rate and has a stated
maturity or final distribution date.
Principal prepayments on the underlying
mortgage assets may cause the CMOs to
be retired substantially earlier than
their stated maturities or final
distribution dates, resulting in a loss
of all or part of any premium paid.
Interest typically is paid or accrues
on all classes of the CMOs on a
monthly, quarterly or semiannual basis.
The principal of and interest on the
underlying mortgage assets may be
allocated among the several classes of
a series of a CMO in a variety of ways.
In a common structure, payments of
principal, including any principal
payments, on the underlying mortgage
assets are applied to the classes of
the series of a CMO in the order of
their respective stated maturities or
final distribution dates, so that no
payment of principal will be made on
any class of CMOs until all other
classes having an earlier stated
maturity of final distribution date
have paid in full.
The Intermediate Fixed Income Fund
also may invest in parallel pay CMOs
and Planned Amortization Class CMOs
("PAC Bonds"). Parallel pay CMOs are
structured to provide payments of
principal on each payment date to more
than one class. These simultaneous
payments are taken into account in
calculating the stated maturity date or
final distribution date of each class,
which, as with other CMO structures,
must be retired by its stated maturity
date or final distribution date, but
may be retired earlier. PAC Bonds
generally require payments of a
specified amount of principal on each
payment date. PAC Bonds are always
parallel pay CMOs with the required
principal payment on such securities
having the highest priority after
interest has been paid to all classes.
Mortgage-backed securities are
subject to the risk of prepayment of
the underlying mortgages. Prepayment of
mortgages which underlie securities
purchased at a premium could result in
capital losses, while prepayments of
mortgages purchased at a discount would
result in capital gain. Further, due to
prepayments of the underlying mortgage
instruments, mortgage-backed securities
do not have a known actual maturity. In
the absence of a known maturity, market
participants generally refer to an
estimated average life. The
Intermediate Fixed Income Fund's
advisers believes that the estimated
average life is the most appropriate
measure of the maturity of a
mortgage-backed security. Accordingly,
in order to determine the average
maturity of the Intermediate Fixed
Income Fund, the Fund's advisers will
use an estimate of the average life of
a mortgage-backed security. An average
life estimate is a function of an
assumption regarding anticipated
prepayment patterns. The assumption is
based upon current interest rates,
current conditions in the relevant
housing markets and other factors. The
assumption is necessarily subjective,
and thus different market participants
could produce somewhat different
average life estimates with regard to
the same security. There can be no
assurance that the average life as
estimated by the Fund's advisers will
the be actual average life.
The Fund's advisers may also
determine the maturity of
mortgage-backed securities and other
fixed income securities with reference
to a call date or the date the
Intermediate Fixed Income Fund may put
the security back to the issuer or to a
third party if such a date is a more
appropriate measure of the actual
maturity date.
The Intermediate Fixed Income Fund
may acquire interest-only and
principal-only components of
mortgage-backed securities and CMOs.
Such securities are often interest-rate
sensitive, and can experience wide
swings in value in response to changes
in interest rates and associated
mortgage prepayment rates. During times
when interest rates are experiencing
fluctuations, such securities can be
difficult to price on a consistent
basis.
Mortgage Dollar The Intermediate Fixed Income Fund may
Rolls enter into Mortgage "Dollar Rolls."
19
<PAGE> 24
Mortgage Dollar Rolls are transactions
in which mortgage-backed securities
are sold for delivery in the current
month and the seller simultaneously
contracts to repurchase substantially
similar securities on a specified
future date. Any difference between
the sale price and the purchase price
is netted against the interest income
foregone on the securities sold to
arrive at an implied borrowing rate.
Alternatively, the sale and purchase
transactions can be executed at the
same price, with the Fund being paid a
fee as consideration for entering into
the commitment to purchase. Mortgage
Dollar Rolls may be renewed prior to
cash settlement and initially may
involve only a firm commitment
agreement by the Fund to buy a
security. If the broker-dealer to whom
the Fund sells the security becomes
insolvent, the Fund's right to
repurchase the security may be
restricted. Other risks involved in
entering into Mortgage Dollar Rolls
include the risk that the value of the
security may change adversely over the
term of the Mortgage Dollar Roll and
that the security the Fund is required
to repurchase may be worth less than
the security that the Fund originally
held.
To avoid any leveraging concerns,
the Fund will place U.S. Government or
other liquid, high grade assets in a
segregated account in an amount
sufficient to cover its repurchase
obligation.
Options The International Growth Fund may
invest in options. A put option gives
the purchaser of the option the right
to sell, and the writer the obligation
to buy, the underlying security at any
time during the option period. A call
option gives the purchaser of the
option the right to buy, and the writer
of the option the obligation to sell,
the underlying security at any time
during the option period. The premium
paid to the writer is the consideration
for undertaking the obligations under
the option contract. The initial
purchase (sale) of an option contract
is an "opening transaction". In order
to close out an option position, the
Fund may enter into a "closing
transaction"-- the sale (purchase) of
an option contract on the same security
with the same exercise price and
expiration date as the option contract
originally opened. If the Fund is
unable to effect a closing transaction
with respect to an option that it has
written, it will not be able to sell
the underlying security until the
option expires or the Fund delivers the
security upon exercise.
The International Growth Fund will
engage in option transactions only as
hedging transactions and not for
speculative purposes. However, even
where used for only hedging purposes,
there are risks associated with such
investments including the following:
(i) the success of a hedging strategy
may depend on the ability to predict
movements in the prices of the
individual securities, fluctuations in
markets and movements in interest
rates; (ii) there may be an imperfect
or no correlation between the changes
in market value of the securities held
by a Fund and the prices of options;
(iii) there may not be a liquid
secondary market for options; and (iv)
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.
The International Growth Fund will
purchase put and call options on
securities, non-U.S. indices, financial
futures or stock index futures only to
the extent that premiums paid on all
outstanding options do not exceed 20%
of the International Growth Fund's net
assets. The aggregate value of the
securities or obligations underlying
options on securities written by the
Fund will not exceed 25% of the Fund's
net assets at the time such options are
entered into by the Fund.
The International Growth Fund may
use options traded on U.S. exchanges,
and to the extent permitted by law,
options traded over-the-counter and on
recognized non-U.S. exchanges. The
Fund will write over-the-counter
options only on a covered basis and
will not invest more than 10% of its
total assets in over-the-counter
options. It is the position of the
Securities and Exchange Commission that
over-the-counter options and assets
used to cover over-the-counter options
are deemed to be illiquid. Accordingly,
the Fund will only invest in such
options to the extent consistent with
its 15% limit on investment in illiquid
securities.
The Intermediate Fixed Income Fund
may purchase options, but will purchase
only options that are listed on a
national securities exchange.
Permissible options for the
Intermediate Fixed Income Fund include
options on stock indices.
Options on Currencies The International Growth Fund may
purchase and write put and call options
on foreign currencies (traded on U.S.
and non-U.S. exchanges or
over-the-counter markets) to manage the
Fund's exposure to changes in dollar
exchange rates. Call
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<PAGE> 25
options on foreign currency written by
the 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 the
Fund, the Fund will establish a
segregated account with its custodian
bank consisting of cash, U.S.
government securities or other high
grade liquid debt securities in an
amount equal to the amount the Fund
would be required to pay upon exercise
of the put.
Options on Non-U.S. The International Growth Fund may
Indices purchase and write put and call options
on non-U.S. indices and enter into
related closing transactions in order
to hedge against the risk of market
price fluctuations or to increase
income to the Fund.
Call and put options on indices
are similar to options on securities
except that, rather than the right to
purchase or sell particular securities
at a specified price, 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. This
amount of cash is equal to the
difference between the closing price of
the index and the exercise price of the
option, expressed in dollars multiplied
by a specified number. Thus, unlike
options on individual securities, all
settlements are in cash, and gain or
loss depends on price movements in the
particular market represented by the
index generally (or in a particular
industry or segment of the market)
rather than price movements in
individual securities.
All options written on indices
must be covered. When the International
Growth Fund writes an option on an
index, it will establish a segregated
account containing cash or high
quality, fixed-income securities with
its custodian in an amount at least
equal to the market value of the option
and will maintain the account while the
option is open or will otherwise cover
the transaction.
The International Growth Fund may
choose to terminate an option position
by entering into a closing transaction.
The ability of the Fund to enter into
closing transactions depends upon the
existence of a liquid secondary market
for such transactions.
Receipts-TRs, TIGRs, To differing extents, each Fund may
CATS, LYONs and invest in Receipts. Receipts are
STRIPS separately traded interest and
principal component parts of U.S.
Treasury obligations that are issued
by banks or brokerage firms and that
are created by depositing U.S.
Treasury obligations into a special
account at a custodian bank. The
custodian holds the interest and
principal payments for the benefit of
the registered owners of the
certificates or receipts. The
custodian arranges for the issuance of
the certificates or receipts
evidencing ownership and maintains the
register. Receipts include "Treasury
Receipts" ("Trs"), "Treasury
Investment Growth Receipts" ("TIGRs"),
"Liquid Yield Option Notes" ("LYONs"),
"Certificates of Accrual on Treasury
Securities" ("CATS") and "Separately
Traded Registered Interest and
Principal Securities" ("STRIPS").
TIGRs and CATS are interests in
private proprietary accounts, while
TRs and STRIPs are interests in
accounts sponsored by the U.S.
Treasury.
STRIPS, TRs, TIGRs, LYONs and CATS
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
amortized over the life of the
security, and such amortization 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 Permitted Investments.
All Funds may invest in STRIPS.
The Growth, Income Equity, and
Intermediate Fixed Income Funds may
also invest in TRs, TIGRs, CATS, and
LYONs.
Repurchase Agreements All Funds may enter into repurchase
agreements, which are agreements 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. The Custodian or its agent
will hold the security as collateral
for the repurchase agreement.
Collateral must be maintained at a
value at least equal to 102% of the
price set forth in the applicable
agreement "repurchase." A Fund bears a
risk of loss in the event the other
party defaults on its obligations and
the Fund is delayed or prevented from
its right to dispose of the collateral
securities or if the Fund realizes a
loss on the sale of the
21
<PAGE> 26
collateral securities. A Fund's
advisers will enter into repurchase
agreements on behalf of the Fund only
with financial institutions deemed to
present minimal risk of bankruptcy
during the term of the agreement based
on guidelines established and
periodically reviewed by the Trustees
or, with respect to the Growth and
Income Equity Funds, by dealers
recognized by the Federal Reserve.
Repurchase agreements are considered
loans by a Fund under the 1940 Act.
Restricted See "Illiquid Securities," above.
Securities
Rule 144A Securities See "Illiquid Securities," above.
Section 4(2) Commercial See "Commercial Paper" and "Illiquid
Paper Securities," above.
Securities of Each of the International Growth,
Non-U.S. Issuers Growth, Income Equity, and Intermediate
Fixed Income Funds may invest in
securities of non-U.S. issuers,
including ADRs and Yankee Obligations.
See "American Depositary Receipts,
European Depositary Receipts and Global
Depositary Receipts," above, and
"Yankee Obligations," below.
The securities of non-U.S.
companies involve special risks and
considerations not typically associated
with investing in U.S. companies. These
risks and considerations include
differences in accounting, auditing and
financial reporting standards,
generally higher commission rates on
non-U.S. portfolio transactions, the
possibility of expropriation or
confiscatory taxation, adverse changes
in investment or exchange control
regulations, political instability
which could affect U.S. investment in
foreign countries and potential
restrictions on the flow of
international capital and currencies.
Non-U.S. companies may also be subject
to less government regulation than U.S.
companies. Moreover, the dividends
payable on a Fund's non-U.S. securities
may be subject to foreign withholding
taxes, thus reducing the amount of net
income available for distribution to
the Fund's shareholders. Further,
non-U.S. securities often trade with
less frequency and volume than domestic
securities and, therefore, may exhibit
greater price volatility. Also, changes
in foreign exchange rates will affect,
favorably or unfavorably, the value of
those securities which are denominated
or quoted in currencies other than the
U.S. dollar.
SWAPS As a way of managing its exposure to
different types of investments, the
International Growth Fund may enter
into interest rate swaps, currency
swaps and other types of swap
agreements such as caps, collars and
floors. In a typical interest rate
swap, one party agrees to make regular
payments equal to a floating interest
rate times a "notional principal
amount", in return for payments equal
to a fixed rate times the same amount,
for a specific period of time. If a
swap agreement provides for payment in
different currencies, the parties might
agree to exchange the notional
principal amount as well. Swaps may
also depend on other prices or rates,
such as the value of an index or
mortgage prepayment rates.
In a typical cap or floor
agreement, one party agrees to make
payments only under specified
circumstances, usually in return for
payment of a fee by the other party.
For example, the buyer of an interest
rate cap obtains the right to receive
payments to the extent that a specific
interest rate exceeds an agreed-upon
level, while the seller of an interest
rate floor is obligated to make
payments to the extent that a specified
interest rate falls below an
agreed-upon level. An interest rate
collar combines elements of buying a
cap and selling a floor.
Swap agreements will tend to shift
the Fund's investments exposure from
one type of investment to another. For
example, if the Fund agrees to exchange
payments in dollars for payments in
foreign currency, the swap agreement
would tend to decrease the Fund's
exposure to U.S. interest rates and
increase its exposure to foreign
currency and interest rates. Caps and
floors have an effect similar to buying
or writing options. Depending on how
they are used, swap agreements may
increase or decrease the overall
volatility of investments and their
share price and yield.
Swap agreements are sophisticated
hedging instruments that typically
involve a small investment of cash
relative to the magnitude of risks
assumed. As a result, swaps can be
highly volatile and have a considerable
impact on the Fund's performance. Swap
agreements are subject to risks related
to the counterparty's ability to
perform, and may decline in value if
the counterparty's creditworthiness
deteriorates. The Fund may also suffer
losses if it is unable to terminate
outstanding swap agreements; or reduce
its exposure through offsetting
transactions. Any
22
<PAGE> 27
obligation the Fund may have under
these types of arrangements will be
covered by setting aside high quality
liquid securities in a segregated
account. The International Growth Fund
will enter into swaps only with
counterparties deemed creditworthy by
the Fund's advisers.
Time Deposits The International Growth and Money
Market Funds may invest in time
deposits. A time deposit is a
non-negotiable receipt issued by a bank
in exchange for the deposit of funds.
Similar to a certificate of deposit, a
time deposit earns a specified rate of
interest over a definite period of
time; however, it cannot be traded in
the secondary market. With respect to
the International Growth Fund, time
deposits with a withdrawal penalty are
considered to be illiquid securities
and, therefore, the International
Growth Fund will not invest more than
15% of its assets in such time deposits
and other illiquid securities. With
respect to the Money Market Fund, time
deposits with a withdrawal penalty are
also considered to be illiquid
securities, and, together with other
illiquid securities, may not exceed 10%
of the Money Market Fund's total assets
and, as to the time deposits, must
mature within two to seven days.
U.S. Government All Funds may invest in obligations of
Agency Obligations federal agencies. Some government
agencies, such as the Government
National Mortgage Association ("GNMA"),
have been established as
instrumentalities of the United States
Government to supervise and finance
certain types of activities. Issues of
these agencies, while not direct
obligations of the United States
Government, are either backed by the
full faith and credit of the United
States (e.g., GNMA) or supported by the
issuing agencies' right to borrow from
the Treasury. The issues of other
agencies are supported only by the
credit of the instrumentality (e.g.,
Federal National Mortgage Association).
U.S. Treasury All Funds may invest in bills, notes
Obligations and bonds issued by the U.S. Treasury.
The International Growth and Money
Market Funds may also invest in
separately traded interest and
principal component parts of such
obligations that are transferable
through the Federal book-entry system
known as ("STRIPS").
STRIPS 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 amortized over the life of
the security, and such amortization
will constitute the income earned on
the security for both accounting and
tax purposes. Because of these
features, STRIPS may be subject to
greater interest rate volatility than
interest-paying Permitted Investments.
Variable and Certain of the obligations purchased
Floating Rate by the International Growth Fund may
Instruments involve a conditional or unconditional
demand feature and may include
variable amount master demand notes.
The Money Market Fund may invest in
certain instruments issued, guaranteed
or sponsored by the U.S. Government or
its agencies, and certain debt
instruments issued by domestic banks
or corporations that carry variable or
floating rates of interest. In the
case of each Fund, such instruments
bear interest at rates which are not
fixed, but which vary with changes in
specified market rates or indices,
such as a Federal Reserve composite
index.
The interest rate on the
securities in which the International
Growth Fund may invest may be reset
daily, weekly, quarterly or at some
other reset period, and may have a
floor or ceiling on interest rate
changes. There is a risk that the
current interest rate on such
obligations may not accurately reflect
existing market interest rates. A
demand instrument with a demand notice
exceeding seven days may be considered
illiquid if there is no secondary
market for such securities.
Warrants The International Growth and
Intermediate Fixed Income Funds may
invest in warrants, which are
instruments giving holders the right,
but not the obligation, to buy shares
of a company at a given price during a
specified period.
When-Issued The International Growth and
Securities Intermediate Fixed Income Funds may
invest in securities subject to
settlement on a future date. The
interest rate realized on these
securities is fixed as of the purchase
date and no interest accrues to the
Fund before settlement. These
securities are subject to market
fluctuation due to changes in market
interest rates and will have the effect
of leveraging the Fund's assets. Both
of the Funds are permitted to invest in
forward commitments or purchases on a
when-issued basis where such purchases
are for investment and not for
leveraging
23
<PAGE> 28
purposes. One or more segregated
accounts will be established with the
Fund's Custodian, and the Fund will
maintain liquid assets in such
accounts in an amount at least equal
in value to the Fund's commitments to
purchase when-issued securities.
Yankee Obligations The Intermediate Fixed Income Fund may
invest in Yankee Obligations
("Yankees") which are U.S.
dollar-denominated instruments of
foreign issuers who either register
with the Securities and Exchange
Commission or issue under Rule 144(A).
These 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 Yankees selected for the Fund
will adhere to the same quality
standards as those utilized for the
selection of domestic debt obligations.
For a description of the risks
associated with Yankees, see
"Securities of Non-U.S. Issuers."
Additional information on other
permitted investments and related risk
factors can be found in the Statement
of Additional Information.
24
<PAGE> 29
APPENDIX
RESTRAINTS ON INVESTMENTS Investments by the Money Market Fund
BY MONEY MARKET are subject to limitations imposed
FUNDS under regulations adopted by the SEC.
These regulations generally require
money market funds, such as the Money
Market Fund, to acquire only U.S.
dollar denominated obligations
maturing in 397 days or less and to
maintain a dollar-weighted average
portfolio maturity of 90 days or less.
In addition, money market funds may
acquire only obligations that present
minimal credit risks and that are
"eligible securities" which means they
are (i) rated, at the time of
investment, by at least two nationally
recognized security rating
organizations (one if it is the only
organization rating such obligation)
in the highest short-term rating
category or, if unrated, determined to
be of comparable quality (a "first
tier security"), or (ii) rated
according to the foregoing criteria in
the second highest short-term rating
category or, if unrated, determined to
be of comparable quality (a "second
tier security"). A security is not
considered to be unrated if its issuer
has outstanding obligations of
comparable priority and security that
have a short-term rating. The Money
Market Fund's advisers will determine
that an obligation presents minimal
credit risks or that unrated
instruments are of comparable quality
in accordance with guidelines
established by the Trustees. The
Trustees must also approve or ratify
the acquisition of unrated securities
or securities rated by only one rating
organization. In addition, investments
in second tier securities are subject
to further constraints that (i) no
more than 5% of the Money Market
Fund's assets may be invested in such
securities in the aggregate, and (ii)
any investments in such securities of
one issuer is limited to the greater
of 1% of the Money Market Fund's total
assets or $1 million. Ordinarily, the
Money Market Fund will not invest more
than 5% of its assets in first-tier
securities of a single issuer but may
invest up to 25% of its total assets
in the first-tier securities of a
single issuer for not more than three
business days.
DESCRIPTION OF SHORT-TERM The following descriptions of
DEBT AND COMMERCIAL commercial paper ratings have been
PAPER RATINGS published by Standard & Poor's
Corporation ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch"),
Duff & Phelps, Inc. ("Duff"), Thomson
BankWatch ("Thomson") and IBCA Limited
and IBCA, Inc. (together "IBCA").
Commercial paper rated A by S&P is
regarded by S&P as having the greatest
capacity for timely payment. Issues
rated A are further refined by use of
the numbers 1+, 1 and 2 to indicate
the relative degree of safety. Issues
rated A-1+ are those with an
"overwhelming degree" of credit
protection. Those rated A-1 reflect a
"very strong" degree of safety
regarding timely payment. Those rated
A-2 reflect a safety regarding timely
payment, but not as high as A-1.
Moody's employs two designations,
judged to be high grade commercial
paper, to indicate the relative
repayment capacity of rated issuers as
follows:
Prime-1 Highest Quality
Prime-2 Higher Quality
The rating Fitch-1 (Highest Grade)
is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1
is regarded as having the strongest
degree of assurance for timely payment.
The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper
rating assigned by Fitch which reflects
an assurance of timely payment only
slightly lower in degree than the
strongest issues.
The rating Duff-1 is the highest
commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as
having very high certainty of timely
payment with excellent liquidity
factors which are supported by ample
asset protection. Risk factors are
minor. Paper rated Duff-3 is regarded
as having good certainty of timely
payment, good access to capital markets
and sound liquidity factors and company
fundamentals. Risk factors are small.
The rating TBW-1 is the highest
commercial paper rating assigned by
Thomson. Paper rated TBW-1 indicates a
very high likelihood that principal and
interest will be paid on a timely
basis. The rating TBW-2 is the
second-highest rating assigned category
by Thomson. The relative degree of
safety regarding timely
A-1
<PAGE> 30
repayment of principal and interest is
strong. However, the relative degree
of safety is not as high as for issues
rated TBW-1.
The designation A1 by IBCA
indicates that the obligation is
supported by a very strong capacity for
timely repayment. Those obligations
rated A1+ are supported by the highest
capacity for timely repayment.
Obligations rated A2 are supported by a
strong capacity for timely repayment,
although such capacity may be
susceptible to adverse changes in
business, economic or financial
conditions.
DESCRIPTION OF Bonds rated AAA have the highest
MUNICIPAL AND CORPORATE BOND rating S&P assigns to a debt
RATINGS obligation. Such a rating indicates an
extremely strong capacity to pay
principal and interest. Bonds rated AA
also qualify as high-quality debt
obligations. Capacity to pay principal
and interest is very strong, and in
the majority of instances they differ
from AAA issues only in small degree.
Debt rated A by S&P has a strong
capacity to pay interest and repay
principal although it is somewhat more
susceptible to the adverse effects of
changes in circumstances and economic
conditions than debt in higher rated
categories. Debt rated BBB by S&P 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.
Bonds which are rated Aaa by
Moody's are judged to be of the best
quality. They carry the smallest degree
of investment risk and are generally
referred to as "gilt edge." Interest
payments are protected by a large, or
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. Bonds rated Aa by Moody's
are judged by Moody's to be of high
quality by all standards. Together with
bonds rated Aaa, 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 risks appear somewhat larger
than in Aaa securities.
Bonds which are rated A by Moody's
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 sometime
in the future.
Bonds which are rated Baa by
Moody's 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.
Bonds rated AAA by Fitch are
judged by Fitch to be strictly high
grade, broadly marketable, suitable for
investment by trustees and fiduciary
institutions liable to but slight
market fluctuation other than through
changes in the money rate. The prime
feature of an AAA bond is a showing of
earnings several times or many times
interest requirements, with such
stability of applicable earnings that
safety is beyond reasonable question
whatever changes occur in conditions.
Bonds rated AA by Fitch are judged by
Fitch to be of safety virtually beyond
question and are readily salable, whose
merits are not unlike those of the AAA
class, but whose margin of safety is
less strikingly broad. The issue may be
the obligation of a small company,
strongly secured but influenced as to
rating by the lesser financial power of
the enterprise and more local type
market.
Bonds rated Duff-1 are judged by
Duff to be of the highest credit
quality with negligible risk factors;
only slightly more than U.S. Treasury
debt. Bonds rated Duff-2, are judged by
Duff to be of high credit quality with
strong protection factors. Risk is
modest but may vary slightly from time
to time because of economic conditions.
Bonds which are rated AAA by
Thomson are judged to be of the highest
category. The ability to repay
principal and interest on a timely
basis is very high. Bonds rated AA by
Thomson are judged by Thomson to be of
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-2
<PAGE> 31
Obligations rated AAA by IBCA have
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
significantly. Obligations for which
there is a very low expectation of
investment risk are rated AA by IBCA.
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-3
<PAGE> 32
INSURANCE INVESTMENT PRODUCTS TRUST
May 1, 1996
INTERNATIONAL GROWTH
GROWTH
AGGRESSIVE GROWTH
INCOME EQUITY
INTERMEDIATE FIXED INCOME
MONEY MARKET
This STATEMENT OF ADDITIONAL INFORMATION is not a Prospectus. It is intended
to provide additional information regarding the activities and operations of
the Trust and should be read in conjunction with the Trust's Prospectus dated
May 1, 1996, as it may be amended from time to time. A Prospectus for the
Trust may be obtained through SEI Financial Management Corporation, 680 East
Swedesford Road, Wayne, PA 19087.
TABLE OF CONTENTS*
<TABLE>
<S> <C>
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Information on Permitted Investments and Related Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Manager and Shareholder Servicing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Advisers and Sub-Advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Trustees and Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Purchase and Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Fund Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Limitation of Trustees' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Shareholder Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Control Persons and Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
TAP-F-002-02
- ----------------------------------
* References to related disclosure in prospectus provided in
parentheses.
<PAGE> 33
THE TRUST
Insurance Investment Products Trust (the "Trust") is an open-end management
investment company established under Massachusetts law as a Massachusetts
business trust under a Declaration of Trust dated June 3, 1994. The Agreement
and Declaration of Trust permits the Trust to offer separate series of units of
beneficial interest ("shares") and separate classes of each series. Each share
of each series represents an equal, proportionate interest in the corresponding
Fund with other shares of that series.
This Statement of Additional Information relates to the International Growth,
Growth, Aggressive Growth, Income Equity, Intermediate Fixed Income and Money
Market Funds (each a "Fund," and collectively, the "Funds").
ADDITIONAL INFORMATION ON PERMITTED INVESTMENTS AND RELATED RISK FACTORS
ASSET-BACKED SECURITIES--The Intermediate Fixed Income Fund may, as described
in the Prospectus, invest in securities backed by automobile receivables and
credit-card receivables and other securities backed by other types of
receivables or other assets. Credit support for asset-backed securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. Credit enhancement techniques include letters of credit,
insurance bonds, limited guarantees (which are generally provided by the
issuer), senior-subordinated structures and overcollateralization. The
Intermediate Fixed Income Fund will only purchase an asset-backed security if
it is rated at least A by S&P or Moody's.
COMMERCIAL PAPER--The term used to designate unsecured short-term promissory
notes issued by corporations and other entities, as described in the
Prospectus. The International Growth Fund may purchase variable amount master
demand notes which may or may not be backed by bank letters of credit. These
notes permit the investment of fluctuating amounts at varying market rates of
interest pursuant to direct arrangements between a Fund, as lender, and the
borrower. Such notes provide that the interest rate on the amount outstanding
varies on a daily, weekly or monthly basis depending upon a stated short-term
interest rate index. There is not a secondary market for the notes.
FORWARD FOREIGN CURRENCY CONTRACTS--The International Growth Fund may enter
into forward foreign currency contracts, which involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate fluctuations
in the values of portfolio securities but rather allow the Fund to establish a
rate of exchange for a future point in time.
When entering into a contract for the purchase or sale of a security in a
foreign currency, the International Growth Fund may enter into a foreign
forward currency contract for the amount of the purchase or sale price to
protect against variations, between the date on which the security is purchased
or sold and the date on which payment is made or received, in the value of the
foreign currency relative to the U.S. Dollar or other foreign currency.
Also, when the Fund's advisers anticipate that a particular foreign currency
may decline substantially relative to the U.S. Dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of its securities denominated in such foreign currency. With respect to
any such forward foreign currency contract, it will not generally be possible
to match precisely the amount covered by that contract and the value of the
securities involved due to changes in the values of such securities resulting
from market movements between the date the forward contract is entered into and
the date it matures. In addition, while forward currency contracts may offer
protection from losses resulting from declines in the value of a particular
foreign currency, they also limit potential gains which might result from
increases in the value of such currency. The International Growth Fund will
also incur costs in connection with forward foreign currency contracts and
conversions of foreign currencies into U.S. Dollars.
MORTGAGE-BACKED SECURITIES--As described in the Prospectus, the Intermediate
Fixed Income Fund may invest in mortgage-backed securities. Mortgage-backed
securities in which the Fund may invest represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association and government-related organizations
such as the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation, as well as by nongovernmental issuers such as commercial
banks, savings and loan institutions, mortgage bankers, and private mortgage
insurance companies. The Intermediate Fixed Income Fund will only purchase
mortgage-backed securities issued or guaranteed by either the U.S. Government,
or its agencies or instrumentalities. Although certain mortgage-backed
securities are guaranteed by a third party or otherwise similarly secured, the
market value of the security, which may fluctuate, is not so secured. If the
Fund purchases a mortgage-backed security at a premium, that portion may be
lost if there is a decline in the market value of the security whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-backed security may decline when interest rates
rise, the converse
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is not necessarily true since in periods of declining interest rates the
mortgages underlying the securities are prone to prepayment. For this and
other reasons, mortgage-backed securities' stated maturity may be shortened by
unscheduled prepayments on the underlying mortgages and, therefore, it is not
possible to predict accurately the securities' return to the Fund. In
addition, regular payments received in respect of mortgage-backed securities
include both interest and principal. No assurance can be given as to the
return the Fund will receive when these amounts are reinvested.
The Fund may also invest in mortgage-backed securities which are collateralized
mortgage obligations structured on pools of mortgage pass-through certificates
or mortgage loans. Collateralized mortgage obligations will be purchased only
if rated in the three highest rating categories by a nationally recognized
statistical rating organization such as Moody's Investors Services, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"). For purposes of
determining the average maturity of a mortgage-backed security in its
investment portfolio, the Intermediate Fixed Income Fund will utilize the
expected average life of the security, as estimated in good faith by the Fund's
advisers. The Intermediate Fixed Income Fund will not invest in
mortgage-backed securities with an expected average maturity of over seven
years.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. Mortgage-backed securities issued by the Federal National Mortgage
Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates
(also known as "Fannie Maes") which are solely the obligations of the FNMA and
are not backed by or entitled to the full faith and credit of the United
States. The FNMA is a government-sponsored organization owned entirely by
private stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-backed securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PC's"). The FHLMC
is a corporate instrumentality of the United States, created pursuant to an Act
of Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Banks and
do not constitute a debt or obligation of the United States or of any Federal
Home Loan Bank. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by the FHLMC. The FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
OBLIGATIONS OF SUPRANATIONAL AGENCIES--may be purchased by the International
Growth Fund. Currently, the International Growth Fund intends to invest only
in obligations issued or guaranteed by the Asian Development Bank,
Inter-American Development Bank, International Bank for Reconstruction and
Development (World Bank), African Development Bank, European Coal and Steel
Community, European Economic Community, European Investment Bank and the Nordic
Investment Bank.
PUT TRANSACTIONS--As described in the Prospectus, the Intermediate Fixed Income
Fund may purchase securities at a price which would result in a yield to
maturity lower than generally offered by the seller at the time of purchase
when the Fund can simultaneously acquire the right to sell the securities back
to the seller, the issuer, or a third party (the "writer") at an agreed-upon
price at any time during a stated period or on a certain date. Such a right is
generally denoted as a "standby commitment" or a "put". The purpose of
engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in fixed income securities. The right to put the securities
depends on the writer's ability to pay for the securities at the time the put
is exercised. The Fund would limit its put transactions to institutions which
its advisers believe present minimum credit risks, and the advisers would use
their best efforts to initially determine and continue to monitor the financial
strength of the sellers of the options by evaluating their financial statements
and such other information as is available in the marketplace. It may,
however, be difficult to monitor the financial strength of the writers because
adequate current financial information may not be available. In the event that
any writer is unable to honor a put for financial reasons, the Fund would be a
general creditor (i.e., on a parity with all other unsecured creditors) of the
writer. Furthermore, particular provisions of the contract between the Fund
and the writer may excuse the writer from repurchasing the securities; for
example, a change in the published rating of the underlying fixed income
securities or any similar event that has an adverse effect on the issuer's
credit or a provision in the contract that the put will not be exercised except
in certain special cases, for example, to maintain portfolio liquidity. The
Fund could, however, at any time sell the underlying portfolio security in the
open market or wait until the portfolio security matures, at which time it
should realize the full par value of the security.
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The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Fund, the Fund could, of course, sell the portfolio
security. The maturity of the underlying security will generally be different
from that of the put. There will be no limit to the percentage of portfolio
securities that the Fund may purchase subject to a put but the amount paid
directly or indirectly for puts which are not integral parts of the security as
originally issued will not exceed 1/2 of 1% of the value of the total assets of
value of the total assets of the Fund calculated immediately after any such put
is acquired. For the purpose of determining the "maturity" of securities
purchased subject to an option to put, and for the purpose of determining the
dollar-weighted average maturity of the Fund including such securities, the
Trust will consider "maturity" to be the first date on which it has the right
to demand payment from the writer of the put although the final maturity of the
security is later than such date.
RECEIPTS--interests in separately traded interest and principal component parts
of U.S. Government obligations that are issued by banks or brokerage firms and
are created by depositing U.S. Government obligations into a special account at
a custodian bank, as described in the Prospectus. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATS"). TIGRs and CATS are interests in private proprietary accounts while
TRs and STRIPS (See "U.S. Treasury Obligations") are interests in accounts
sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities;
for more information, see "Zero Coupon Securities."
REPURCHASE AGREEMENTS--agreements under which securities are acquired from a
securities dealer or bank subject to resale on an agreed upon date and at an
agreed upon price which includes principal and interest, as described in the
Prospectus. The Fund involved bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the Fund is
delayed or prevented from exercising its rights to dispose of the collateral
securities. A Fund's advisers enter into repurchase agreements only with
financial institutions which they deem to present minimal risk of bankruptcy
during the term of the agreement based on guidelines which are periodically
reviewed by the Board of Trustees. These guidelines currently permit the Funds
to enter into repurchase agreements only with approved banks and primary
securities dealers, as recognized by the Federal Reserve Bank of New York,
which have minimum net capital of $100 million, or with a member bank of the
Federal Reserve System. Repurchase agreements are considered to be loans
collateralized by the underlying security. Repurchase agreements entered into
by the Funds will provide that the underlying security at all times shall have
a value at least equal to 102% of the price stated in the agreement. This
underlying security will be marked to market daily. The Fund's advisers
monitor compliance with this requirement. Under all repurchase agreements
entered into by the Funds, the Custodian or its agent must take possession of
the underlying collateral. However, if the seller defaults, the Funds could
realize a loss on the sale of the underlying security to the extent the
proceeds of the sale are less than the resale price. In addition, even though
the Bankruptcy Code provides protection for most repurchase agreements, if the
seller should be involved in bankruptcy or insolvency proceedings, the Funds
may incur delay and costs in selling the security and may suffer a loss of
principal and interest if the Funds are treated as an unsecured creditor.
SECURITIES OF NON-U.S. ISSUERS--The International Growth, Growth, Income
Equity, and Intermediate Fixed Income Funds may invest in U.S. Dollar
denominated obligations or securities of non-U.S. issuers. Permissible
investments may consist of obligations of foreign branches of U.S. banks and
non-U.S. banks, including European Certificates of Deposit, European Time
Deposits, Canadian Time Deposits and Yankee Certificates of Deposit and
investments in Canadian Commercial Paper, non-U.S. securities and Europaper.
In addition, the Funds may invest in American Depositary Receipts ("ADRs")
traded on registered exchanges or NASDAQ. While the Funds expect to invest
primarily in sponsored ADRs, a joint arrangement between the issuer and the
depositary, some ADRs may be unsponsored. Unlike sponsored ADRs, the holders
of unsponsored ADRs bear all expenses and the depositary may not be obligated
to distribute shareholder communications or to pass through the voting rights
on the deposited securities. These instruments may subject the Fund to
investment risks that differ in some respects from those related to investments
in obligations of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of withholding
taxes on interest or other income, possible seizure, nationalization, or
expropriation of non-U.S. deposits, the possible establishment of exchange
controls or taxation at the source, greater fluctuations in value due to
changes in the exchange rates, or the adoption of other non-U.S. governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. Such investments may also entail higher custodial fees
and sales commissions than domestic investments. Non-U.S. issuers of
securities or obligations are often subject to accounting treatment and engage
in business practices different from those respecting domestic issuers of
similar securities or obligations. Non-U.S. branches of U.S. banks and
non-U.S. banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
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SECURITIES LENDING--In order to generate additional income, each of the Growth,
Income Equity, and Aggressive Growth Funds may lend the securities in which it
is invested pursuant to agreements requiring that the loans be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities, as collateral equal to at least the
market value at all times of the securities lent. Such loans will not be made
if, as a result, the aggregate amount of all outstanding securities loans for a
Fund exceeds 20% of the value of that Fund's total assets taken at fair market
value. A Fund will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in
U.S. government securities. However, a Fund will normally pay lending fees to
such broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Fund's advisers to be of good
standing and when, in the judgment of the advisers, the consideration which can
be earned currently from such securities loans justifies the attendant risk.
Any loan may be terminated by either party upon reasonable notice to the other
party. The Funds may use the Distributor as a broker in these transactions.
TIME DEPOSITS--a non-negotiable receipt issued by a bank in exchange for the
deposit of funds, as described in the Prospectus. Like a certificate of
deposit, it earns a specified rate of interest over a definite period of time;
however, it cannot be traded in the secondary market.
Time deposits with a withdrawal penalty are considered to be illiquid
securities; no Fund will invest more than 15% of its net assets in such time
deposits and other illiquid securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS--As described in the Prospectus, agencies of
the United States Government, which issue obligations consist of, among others,
Export Import Bank of the United States, Farmers Home Administration, Federal
Farm Credit System, Federal Housing Administration, Government National
Mortgage Association, Maritime Administration, Small Business Administration,
and The Tennessee Valley Authority. The Funds may purchase securities issued
or guaranteed by the Government National Mortgage Association which represent
participations in Veterans Administration and Federal Housing Administration
backed mortgage pools. Obligations of instrumentalities of the United States
Government include securities issued by, among others, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association and the United States
Postal Service. Some of these securities are supported by the full faith and
credit of the United States Treasury (e.g., Government National Mortgage
Association), others are supported by the right of the issuer to borrow from
the Treasury and still others are supported only by the credit of the
instrumentality (e.g., Federal National Mortgage Association). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of
a default prior to maturity there might not be a market and thus no means of
realizing the value of the obligation prior to maturity. Guarantees as to the
timely payment of principal and interest do not extend to the value or yield of
these securities nor to the value of a Fund's shares. The Money Market Fund
does not intend to purchase securities issued by the World Bank, the
Inter-American Development Bank or the Asian Development Bank.
U.S. TREASURY OBLIGATIONS--bills, notes and bonds issued by the U.S. Treasury
and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known
as Separately Traded Registered Interest and Principal Securities ("STRIPS"),
as described in the Prospectus. No Fund may actively trade STRIPS. STRIPS are
sold as zero coupon securities; for more information, see "Zero Coupon
Securities."
VARIABLE OR FLOATING RATE INSTRUMENTS--may involve a demand feature and may
include variable amount master demand notes available through the Custodian, or
otherwise (which may not be booked by bank letters of credit), as described in
the Prospectus. Variable or floating rate instruments bear interest at a rate
which varies with changes in market rates. The holder of an instrument with a
demand feature may tender the instrument back to the issuer at par prior to
maturity. A variable amount master demand note is issued pursuant to a written
agreement between the issuer and the holder, its amount may be increased by the
holder or decreased by the holder or issuer, it is payable on demand, and the
rate of interest varies based upon an agreed formula. The quality of the
underlying credit must, in the opinion of the Fund's advisers, be equivalent to
the long-term bond or commercial paper ratings applicable to permitted
investments for each Fund. Each Fund's advisers will monitor on an ongoing
basis the earning power, cash flow, and liquidity ratios of the issuers of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
In case of obligations which include a put feature at the option of the debt
holder, the date of the put may be used as an effective maturity date for the
purpose of determining weighted average portfolio maturity.
WHEN-ISSUED SECURITIES--As described in the Prospectus, the International
Growth and Intermediate Fixed Income Funds may purchase when-issued securities
which involve the purchase of debt obligations on a when-issued
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basis, in which case delivery and payment normally take place within 45 days
after the date of commitment to purchase. The Funds will only make commitments
to purchase obligations on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date. The
when-issued securities are subject to market fluctuation, and no interest
accrues to the purchaser during this period. The payment obligation and the
interest rate that will be received on the securities are each fixed at the
time the purchaser enters into the commitment. Purchasing obligations on a
when-issued basis is a form of leveraging and can involve a risk that the
yields available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself. In that case there could
be an unrealized loss at the time of delivery. The Funds will establish a
segregated account with the Custodian and maintain liquid assets in an amount
at least equal in value to that Fund's commitments to purchase when-issued
securities. If the value of these assets declines, the Fund involved will
place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
ZERO COUPON SECURITIES--STRIPS and Receipts (TRs, TIGRs and CATS) are sold as
zero coupon securities, that is, fixed income securities that have been
stripped of their unmatured interest coupons. Zero coupon securities are sold
at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. The
amount of this discount is credited over the life of the security, and the
accretion constitutes the income earned on the security for both accounting and
tax purposes. Because of these features, the market prices of zero coupon
securities are generally more volatile than the market prices of securities
that have similar maturity but that pay interest periodically. Zero coupon
securities are likely to respond to a greater degree to interest rate changes
than are non-zero coupon securities with similar maturity and credit qualities.
OTHER INVESTMENTS
The Trust is not prohibited from investing in obligations of banks which are
clients of SEI Corporation ("SEI"). However, the purchase of shares of the
Trust by them or by their customers will not be a consideration in determining
which bank obligations the Trust will purchase. The Trust will not purchase
obligations of any of the Investment Advisers to the Trust.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
A Fund may not:
1. Borrow money except for temporary or emergency purposes and then only in
an amount not exceeding 10% of the value of total assets. This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate heavy redemption requests if they should occur
and is not for investment purposes. All borrowing will be repaid before
making additional investments, and any interest paid on such borrowing
will reduce income. For purposes of this provision, the use of investment
techniques described in the Prospectus and this Statement of Additional
Information will not be considered to involve the borrowing of money
subject to the restrictions of this provision.
2. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
each Fund may enter into repurchase agreements, provided that repurchase
agreements maturing in more than seven days, restricted securities and
other securities which are not readily marketable are not to exceed, in
the aggregate, 15% of the Fund's total assets, except for the Money Market
Fund for which such investments cannot exceed 10% of the Fund's total
assets; (iii) the International Growth, Growth, Aggressive Growth and
Income Equity Funds may engage in securities lending as described in the
Prospectus and this Statement of Additional Information; and (iv) the
International Growth Fund may enter into forward foreign currency
contracts as described in the Prospectus.
3. Pledge, mortgage or hypothecate assets except to secure temporary
borrowing permitted by (1) above in aggregate amounts not to exceed 10% of
total assets of such Fund taken at current value at the time of the
incurrence of such loan.
4. Invest in companies for the purpose of exercising control.
5. Acquire more than 10% of the voting securities of any one issuer.
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts. However, subject to the permitted
investments, a Fund may purchase obligations issued by companies which
invest in real estate, commodities or commodities contracts.
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7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits
as necessary for the clearance of security transactions, provided that the
International Growth Fund's use of forward foreign currency contracts as
described herein shall not be deemed to be selling securities short or to
be maintaining a short position and that the use of margin payments in
connection with such forward contracts shall not be deemed to constitute
purchasing securities on margin.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Issue senior securities (as defined in the Investment Company Act of 1940,
as amended ("1940 Act")) except in connection with permitted borrowing as
described in the Prospectus and this Statement of Additional Information
or as permitted by rule, regulation or order of the Securities and
Exchange Commission (the "SEC").
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs
immediately after or as a result of a purchase of such security. These
investment limitations and the investment limitations in each Prospectus are
fundamental policies of the Trust and may not be changed without shareholder
approval.
NON-FUNDAMENTAL POLICIES
In addition to the Fundamental Policies described above, each Fund is subject
to non-fundamental investment limitations described in the Prospectus, which,
as operating policies of the Funds, may be changed by the Trustees of the Trust
without prior approval of or notice to shareholders. Under these
non-fundamental policies, a Fund may not:
1. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder and may only
purchase securities of money market open-end investment companies. Under
these rules and regulations, a Fund is prohibited from acquiring the
securities of other investment companies if, as a result of such
acquisition, the Fund owns more than 3% of the total voting stock of the
company; securities issued by any one investment company represent more
than 5% of the total Fund assets; or securities (other than treasury
stock) issued by all investment companies represent more than 10% of the
total assets of the Fund. A Fund's purchase of such investment company
securities results in the bearing of expenses such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees.
2. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or any
investment adviser of the Trust ("Adviser") owns beneficially more than
1/2 of 1% of the shares or securities of such issuer and all such
officers, trustees, partners and directors owning more than 1/2 of 1% of
such shares or securities together own more than 5% of such shares or
securities.
3. Purchase securities of any company which has (with predecessors) a record
of less than three years continuing operations if as a result, more than
5% of the total assets (taken at fair market value) would be invested in
such securities. However, the Money Market Fund may purchase such
securities if they are (i) obligations issued or guaranteed by the United
States government, its agencies or instrumentalities or (ii) municipal
securities which are rated by at least two nationally recognized municipal
bond rating services.
4. Purchase warrants, puts, calls, straddles, spreads or combinations
thereof, except that the International Growth and Intermediate Fixed
Income Funds may purchase investments with put features as described in
the Prospectus and this Statement of Additional Information, that the
Aggressive Growth and Intermediate Fixed Income Funds may invest in
warrants as described in the Prospectus and in this Statement of
Additional Information, and that the International Growth Fund may enter
into forward foreign currency contracts as described in the Prospectus and
in this Statement of Additional Information.
5. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
6. The Funds may not purchase restricted securities (securities which must be
registered under the Securities Act of 1933 before they may be offered or
sold to the public) or other illiquid securities except as described in
the Prospectus and this Statement of Additional Information.
The Trust also intends, as a non-fundamental investment policy, to comply in
all material respects with state law insurance limitations in accordance with
instructions the Trust receives from Insurers whose separate accounts purchase
shares of the Trust.
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THE MANAGER AND SHAREHOLDER SERVICING AGENT
The Manager has entered into a management agreement with the Trust (the
"Management Agreement"). The Management Agreement provides that the Manager
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the Management
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Manager in the performance of its duties
or from reckless disregard of its duties and obligations thereunder.
The continuance of the Management Agreement must be specifically approved at
least annually (i) by the vote of a majority of the Trustees or by the vote of
a majority of the outstanding voting securities of the Fund, and (ii) by the
vote of a majority of the Trustees of the Trust who are not parties to the
Management Agreement or an "interested person" (as that term is defined in the
1940 Act) of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement is terminable at
any time as to any Fund without penalty by the Trustees of the Trust, by a vote
of a majority of the outstanding shares of the Fund or by the Manager on not
less than 30 days nor more than 60 days written notice.
Manager, a wholly-owned subsidiary of SEI Corporation ("SEI"), was organized as
a Delaware corporation in 1969 and has its principal business offices at 680
East Swedesford Road, Wayne, Pennsylvania 19087. Alfred P. West, Jr., Henry H.
Greer and Carmen V. Romeo constitute the Board of Directors of the Manager. Mr.
West serves as the Chairman of the Board of Directors and Chief Executive
Officer of the Manager and SEI. Mr. Greer serves as President and Chief
Operating Officer of the Manager and SEI. SEI and its subsidiaries are leading
providers of fund evaluation services, trust accounting systems, and brokerage
and information services to financial institutions, institutional investors and
money managers. The Manager also serves as manager to the following other
mutual funds: The Achievement Funds Trust; The Advisors' Inner Circle Fund; The
Arbor Fund; ARK Funds; Bishop Street Funds; Conestoga Family of Funds;
CoreFunds, Inc.; CrestFunds, Inc.; CUFUND; First American Funds, Inc.; First
American Investment Funds, Inc.; Inventor Funds, Inc.; Marquis Funds(R); Monitor
Funds; Morgan Grenfell Investment Trust; The Pillar Funds; The PBHG Funds, Inc.;
Rembrandt Funds(R), SEI Asset Allocation Trust; SEI Daily Income Trust; SEI
Index Funds; SEI Institutional Managed Trust; SEI International Trust; SEI
Liquid Asset Trust; SEI Tax Exempt Trust; 1784 Funds; Stepstone Funds; STI
Classic Funds; and STI Classic Variable Trust, each of which is an open-end
management investment company managed by SEI Financial Management Corporation.
As to any Fund, the Manager may, from time to time voluntarily waive a portion
of its fees, which waiver may be terminated at any time. For management services
rendered during the fiscal year ended December 31, 1995, the Funds paid the
Manager, or the Manager reimbursed the Funds, the following management fees:
International Growth Fund, $(45,438); Growth Fund, $(24,406); Aggressive Growth
Fund, $(14,098); Income Equity Fund, $(23,833); Intermediate Fixed Income Fund,
$(22,979); and Money Market Fund, $(12,213).
If operating expenses of any Fund exceed limitations established by certain
states, the Manager will pay such excess. The Manager will not be required to
bear expenses of any Fund to an extent which would result in the Fund's
inability to qualify as a regulated investment company under provisions of the
Internal Revenue Code. The term "expenses" is defined in such laws or
regulations, and generally excludes brokerage commissions, distribution
expenses, taxes, interest and extraordinary expenses.
THE ADVISERS AND SUB-ADVISERS
Each Adviser has entered into an advisory agreement with the Trust (the
"Advisory Agreement"). One Adviser (SEI Financial Management Corporation
("SFM")) in turn has entered into a sub-advisory agreement (a "Sub-Advisory
Agreement") with each Sub-Adviser. The Advisory Agreements and each
Sub-Advisory Agreement (collectively, the "advisory agreements") provide that
the applicable Adviser or Sub-Adviser shall not be protected against any
liability to the Trust or the Trust shareholders by reason of willful
misfeasance, bad faith or negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder.
The continuance of each advisory agreement must be specifically approved at
least annually (i) by the vote of a majority of the outstanding shares of that
Fund or by the Trustees, and (ii) by the vote of a majority of the Trustees who
are not parties to such advisory agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. Each advisory agreement will terminate automatically in the event of
its assignment, and is terminable at any time without penalty by the Trustees
of the Trust or, with respect to a Fund, by a majority of the outstanding
shares of that Fund, on not less than 30 days nor more than 60 days written
notice to the applicable adviser, or by the adviser on 90 days written notice
to the Trust.
The Advisers and the Sub-Advisers, pursuant to the applicable advisory
agreement, make investment decisions for the assets of the applicable Fund (or
allocated portion of assets), and each continuously reviews, supervises, and
administers the Fund's investment program. Each Sub-Adviser (other than LSV
Asset Management as to SFM) is independent of the Advisers and SEI and
discharges its responsibilities with respect and the applicable Fund subject to
the ultimate supervision of, and policies set by, the Trustees of the Trust.
Each Adviser and Sub-Adviser may, from time to time, voluntarily waive a
portion of its fees, which waiver may be terminated at any time.
- 8 -
<PAGE> 40
For the fiscal year ended December 31, 1995, the Funds paid fees to the
advisers as follows:
<TABLE>
<CAPTION>
===========================================================================================================
Advisory Fees Paid Advisory Fees Waived
============================================================
1995 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
International Growth Fund $ 4,862 $ ---
- -----------------------------------------------------------------------------------------------------------
Growth Fund $ 4,624 $ ---
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth Fund $ 4,074 $ ---
- -----------------------------------------------------------------------------------------------------------
Income Equity Fund $ 4,071 $ ---
- -----------------------------------------------------------------------------------------------------------
Intermediate Fixed Income Fund $ 2,818 $ ---
- -----------------------------------------------------------------------------------------------------------
Money Market Fund $ 416 $ ---
===========================================================================================================
</TABLE>
For the fiscal year ended December 31, 1995, SFM paid fees to the Sub-Advisers
as follows:
<TABLE>
<CAPTION>
===========================================================================================================
Sub-Advisory Fees Paid Sub-Advisory Fees Waived
=============================================================
1995 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Acadian Asset Management, Inc. $ 3,283 $ ---
- -----------------------------------------------------------------------------------------------------------
Alliance Capital Management L.P. $ 2,860 $ ---
- -----------------------------------------------------------------------------------------------------------
IDS Advisory Group, Inc. $ --- $ ---
- -----------------------------------------------------------------------------------------------------------
LSV Asset Management $ --- $ ---
- -----------------------------------------------------------------------------------------------------------
Mellon Equity Associates $ 2,330 $ ---
- -----------------------------------------------------------------------------------------------------------
Merus Capital Management(1/) $ --- $ ---
- -----------------------------------------------------------------------------------------------------------
Pilgrim Baxter & Associates, Ltd(2/) $ 3,134 $ ---
- -----------------------------------------------------------------------------------------------------------
Western Asset Management Company $ 1,281 $ ---
- -----------------------------------------------------------------------------------------------------------
WorldInvest Limited(3/) $ --- $ ---
===========================================================================================================
</TABLE>
(1/) The Investment Sub-Advisory Agreement between SFM and Merus Capital
Management relating to the Income Equity Portfolio terminated on April 1, 1996.
(2/) The Investment Sub-Advisory Agreement between SFM and Pilgrim Baxter &
Associates, Ltd. relating to the Aggressive Growth Fund will terminate on June
30, 1996. At such time, SFM may contract with another sub-adviser to assume
the portfolio management responsibilities for the Aggressive Growth Fund as of
such date.
(3/) The Investment Sub-Advisory Agreement between SFM and WorldInvest
Limited relating to the International Growth Fund terminated on December 11,
1995.
LSV Asset Management is an affiliate of SFM.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, serves as the principal underwriter of the Trust's shares. The
Distributor is located at 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.
TRUSTEES AND OFFICERS OF THE TRUST
- 9 -
<PAGE> 41
The Trustees and executive officers of the Trust, their respective ages and
their principal occupations for the last five years are set forth below. Each
may have held other positions with the named companies during that period.
Unless otherwise noted, the business address of each Trustee and executive
officer is SEI Financial Management Corporation, 680 East Swedesford Road,
Wayne, PA 19087. Certain trustees and officers of the Trust also serve as
trustees and officers of some or all of the following: The Achievement Funds
Trust; The Advisors' Inner Circle Fund; The Arbor Fund; ARK Funds; Bishop
Street Funds; Conestoga Family of Funds; CoreFunds, Inc.; CrestFunds, Inc.;
CUFUND; First American Funds, Inc.; First American Investment Funds, Inc.;
Inventor Funds, Inc.; Marquis Funds(R); Monitor Funds; Morgan Grenfell
Investment Trust; The Pillar Funds; The PBHG Funds, Inc.; Rembrandt Funds(R),
SEI Asset Allocation Trust; SEI Daily Income Trust; SEI Index Funds; SEI
Institutional Managed Trust; SEI International Trust; SEI Liquid Asset Trust;
SEI Tax Exempt Trust; 1784 Funds; Stepstone Funds; STI Classic Funds; and STI
Classic Variable Trust, each of which is an open-end management investment
company managed by SEI Financial Management Corporation and, except for
Rembrandt Funds(R), distributed by SEI Financial Services Company.
ROBERT A. NESHER (age 49) - Chairman of the Board of Trustees.* Retired since
1994. - Executive Officer-Executive Vice President of SEI, 1986 - 1994.
Director and Executive Vice President of the Manager and Executive Vice
President of the Distributor since September 1981-1994.
RICHARD F. BLANCHARD (age 76) - Trustee** - P.O. Box 76, Canfield Road, Convent
Station, NJ 07961. Private Investor. Director of AEA Investors Inc.
(acquisition and investment firm) June 1981-86, Director of Baker Hughes Corp.
(oil service company) 1976-88. Director of Imperial Clevite Industries
(transportation equipment company) 1981-87. Executive Vice President of
American Express Company (financial services company), responsible for the
investment function, before June 1981.
WILLIAM M. DORAN (age 55) - Trustee* - 2000 One Logan Square, Philadelphia, PA
19103. Partner of Morgan, Lewis & Bockius LLP, counsel to the Trust, Manager
and Distributor, Director and Secretary of SEI and Secretary of the Manager and
Distributor.
F. WENDELL GOOCH (age 63) - Trustee** - P.O. Box 190, Paoli, IN 47454.
President, Orange County Publishing Co., Inc., since October 1981. Publisher
of the Paoli News and the Paoli Republican and Editor of the Paoli Republican
since January 1981, President, H & W Distribution, Inc. since July 1984.
Executive Vice President, Trust Department, Harris Trust and Savings Bank and
Chairman of the Board of Directors of The Harris Trust Company of Arizona
before January 1981. Trustee of STI Classic Funds.
FRANK E. MORRIS (age 72) - Trustee** - 105 Walpole Street, Dover, MA 02030.
Retired since 1990. Peter Drucker Professor of Management, Boston College,
since 1989. President, Federal Reserve Bank of Boston, 1968-1988. Trustee of
The Arbor Fund, Marquis Funds, Advisors' Inner Circle Fund, Advisors' Inner
Circle Fund II, Inc. and FFB Lexicon Funds.
JAMES M. STOREY (age 65) - Trustee** - Ten Post Office Square, Boston, MA
02109. Retired since 1993. Formerly, Partner of Dechert Price & Rhoads (law
firm).
DAVID LEE (age 44) - President, Chief Executive Officer - Senior Vice President
of the Distributor since 1993. Vice President of the Distributor since 1991.
President, GW Sierra Trust Funds prior to 1991.
SANDRA K. ORLOW (age 42) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of the Manager and Distributor since 1988. Corporate
Legal Assistant, Omni Exploration (oil and gas investment) prior to 1983.
KEVIN P. ROBINS (age 35) - Vice President, Assistant Secretary - Senior Vice
President and General Counsel of SEI, the Manager and the Distributor, and
Assistant Secretary of SEI since 1994. Secretary of the Manager and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Manager and Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP
(law firm) prior to 1992.
JOSEPH M. LYDON (age 36) - Vice President, Assistant Secretary - Director of
Business Administration of Fund Resources, SEI Corporation since 1995, Vice
President of Fund Group and Vice President of Dreman Value Management
(investment adviser), President of Dreman Financial Services, Inc. prior to
1995.
TODD CIPPERMAN (age 30) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI the Manager and the Distributor since 1995,
Associate, Dewey Ballantine (law firm), 1994-1995, Associate, Winston & Strawn
(law firm), 1991-1994.
KATHRYN L. STANTON (age 36) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI, the Manager and Distributor since 1994.
Associate, Morgan, Lewis & Bockius (law firm), 1989 - 1994.
- 10 -
<PAGE> 42
JEFFREY A. COHEN (age 35) - Controller, Chief Financial Officer - CPA, Vice
President, International and Domestic Funds Accounting, SEI Corporation since
1991. Audit Manager, Price Waterhouse prior to 1991.
RICHARD W. GRANT (age 50) - Secretary - 2000 One Logan Square, Philadelphia, PA
19103, Partner, Morgan, Lewis & Bockius, counsel to the Trust, Manager and
Distributor.
- ------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested
persons" of the Trust as the term is defined in the 1940 Act.
** Messrs. Blanchard, Gooch, Morris and Storey serve as members of the Audit
Committee of the Trust.
The Trustees and officers of the Trust do not own variable contracts
representing 1% or more of the outstanding shares of the Trust. The Trust pays
the fees for unaffiliated Trustees. Compensation of officers and affiliated
Trustees of the Trust is paid by the Manager.
- 11 -
<PAGE> 43
The unaffiliated Trustees of the Trust received the following compensation from
the Trust during the 1995 fiscal year:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated from the
Aggregate Accrued as Annual Registrant and
Compensation Part of the Benefits Fund Complex
from the Registrant's upon Paid to
Name of Person, Position Registrant Expenses Retirement Trustees
------------------------ ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Richard F. Blanchard $ 7,511.57 $ N/A $ N/A $ 90,000
Trustee*
F. Wendell Gooch $ 7,511.57 $ N/A $ N/A $ 90,000
Trustee*
Frank E. Morris $ 7,511.57 $ N/A $ N/A $126,000
Trustee**
James M. Storey $ 7,511.57 $ N/A $ N/A $126,000
Trustee**
</TABLE>
Each unaffiliated Trustee currently receives $22,500 per meeting of the Board
which he or she attends.
* Currently serves as Trustee to the Trust and does not serve as trustee or
director to any other fund within the SFM mutual fund complex.
** Currently serves as Trustee to the Trust and serves as trustee or director
to one other fund within the SFM mutual fund complex.
PERFORMANCE
From time to time, the yield and/or total return of any Fund may be advertised.
These figures will be based on historical earnings and are not intended to
indicate future performance.
The yield of a Fund, other than the Money Market Fund, refers to the annualized
income generated by an investment in the Fund over a specified 30-day period.
The yield is calculated by assuming that the income generated by the investment
during that period generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated
according to the following formula:
6
Yield = 2[((a-b)/cd) + 1) -l], where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursements); c =
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period.
The current yield of the Money Market Fund is calculated daily based upon the
seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by 365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield.
The Money Market Fund computes its effective compound yield by determining the
net changes, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
365/7
Effective Yield = {(Base Period Return + 1) } - 1. The current and the
effective yields reflect the reinvestment of net income earned daily on the
Money Market Fund's assets.
Actual yields will depend on such variables as asset quality, average asset
maturity, the type of instruments the Money Market Fund invests in, changes in
interest rates on money market instruments, changes in the expenses of the
Money Market Fund and other factors.
- 12 -
<PAGE> 44
Yields are one basis upon which investors may compare the Money Market Fund
with other money market funds; however, yields of other money market mutual
funds and other investment vehicles may not be comparable because of the
factors set forth above and differences in the methods used in valuing
portfolio instruments.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula:
n
P(1 + T) = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
The performance of the Funds may, from time to time, be compared to that of
other mutual funds tracked by mutual fund rating services, to broad groups of
comparable mutual funds, or to unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
From time to time indications of the Funds' past performance may be published.
Such performance will be measured by independent sources such as (but not
limited to) Lipper Analytical Services, Incorporated, Weisenberger Investment
Companies Service, IBC/Donoghue's Money Fund Report, Bank Rate Monitor,
Financial Planning Magazine, Standard & Poor's Indices, Dow Jones Industrial
Averages, VARDS, Barron's, Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Personal Investor, Sylvia Porter's Personal Finance and
The Wall Street Journal. Information provided to the NASD for review may be
used as advertisements for publication in regional and local newspapers. In
addition, Fund performance may be advertised relative to certain indices and
benchmark investments, including: (a) the Lipper Analytical Services, Inc.
Mutual Fund Performance Analysis, Fixed-Income Analysis and Mutual Fund Indices
(which measure total return and average current yield for the mutual fund
industry and rank mutual fund performance); (b) the CDA Mutual Fund Report
published by CDA Investment Technologies, Inc. (which analyzes price, risk and
various measures of return for the mutual fund industry); (c) the Consumer
Price Index published by the U.S. Bureau of Labor Statistics (which measures
changes in the price of goods and services); (d) Stocks, Bonds, Bills and
Inflation published by Ibbotson Associates (which provides historical
performance figures for stocks, government securities and inflation); (e) the
Hambrecht & Quist Growth Stock Index; (f) the NASDAQ OTC Composite Prime
Return; (g) the Russell Midcap Index; (h) the Russell 2000 Index - Total
Return; (i) the ValueLine Composite-Price Return; (j) the Wilshire 4500 Index;
(k) the Salomon Brothers' World Bond Index (which measures the total return in
U.S. dollar terms of government bonds, Eurobonds and non-U.S. bonds of ten
countries, with all such bonds having a minimum maturity of five years); (l)
the Shearson Lehman Brothers Aggregate Bond Index or its component indices (the
Aggregate Bond Index measures the performance of Treasury, U.S. Government
agencies, mortgage and Yankee bonds); (m) the S&P Bond indices (which measure
yield and price of corporate, municipal and U.S. Government bonds); (n) the
J.P. Morgan Global Government Bond Index; (o) Donoghue's Money Market Fund
Report (which provides industry averages of 7-day annualized and compounded
yields of taxable, tax-free and U.S. Government money market funds); (p) other
taxable investments including certificates of deposit, money market deposit
accounts, checking accounts, savings accounts, money market mutual funds and
repurchase agreements; (q) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, First Boston Corporation, Morgan
Stanley (including EAFE), Salomon Brothers, Merrill Lynch, Donaldson Lufkin and
Jenrette or other providers of such data; (r) the FT-Actuaries Europe and
Pacific Index; (s) mutual fund performance indices published by Variable
Annuity Research & Data Service; and (t) mutual fund performance indices
published by Morningstar, Inc. The composition of the investments in such
indices and the characteristics of such benchmark investments are not identical
to, and in some cases are very different from, those of a Fund. These indices
and averages are generally unmanaged and the items included in the calculations
of such indices and averages may be different from those of the equations used
by the Trust to calculate a Fund's performance figures.
A Fund's investment results will vary from time to time depending upon market
conditions, the composition of its investment portfolio and its operating
expenses. Yield and performance information of any Fund will not be compared
with such information for funds that offer their shares directly to the public,
because Fund performance data do not reflect charges imposed by Insurers on the
variable contracts. The effective yield and total return for a Fund should be
distinguished from the rate of return of a corresponding division of an
Insurer's separate account, which rate will reflect the deduction of additional
charges, including mortality and expense risk charges, and will therefore be
lower. Accordingly, performance figures for a Fund will only be advertised if
comparable performance figures for the corresponding division of the separate
account are included in the advertisements. Variable contractholders should
consult the variable contract prospectus for further information. Each Fund's
results also should be considered relative to the risks associated with its
investment objectives and policies.
- 13 -
<PAGE> 45
DETERMINATION OF NET ASSET VALUE
Securities of the Money Market Fund will be valued by the amortized cost method
which involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuations
in general market rates of interest on the value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by this method, is higher or lower than the price the Fund
would receive if it sold the instrument. During periods of declining interest
rates, the daily yield of the Fund may tend to be higher than a like
computation made by a company with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of
its portfolio securities. Thus, if the use of amortized costs by the Money
Market Fund resulted in a lower aggregate portfolio value on a particular day,
a prospective investor in the Fund would be able to obtain a somewhat higher
yield than would result from investment in a company utilizing solely market
values, and existing shareholders in the Fund would experience a lower yield.
The converse would apply in a period of rising interest rates.
The Money Market Fund's use of amortized cost valuation and the maintenance of
its net asset value at $1.00 are permitted by Rule 2a-7, promulgated by the SEC
under the 1940 Act, as amended, provided that certain conditions are met.
Under Rule 2a-7 as amended, a money market portfolio must maintain a
dollar-weighted average maturity in the Fund of 90 days or less and not
purchase any instrument having a remaining maturity of more than 397 days. In
addition, money market funds may acquire only U.S. dollar denominated
obligations that present minimal credit risks and that are "eligible
securities" which means they are (i) rated, at the time of investment, by at
least two nationally recognized security rating organizations (one, if it is
the only organization rating such obligation) in the highest short-term rating
category or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Money Market Fund's advisers
will determine that an obligation presents minimal credit risks or that unrated
instruments are of comparable quality in accordance with guidelines established
by the Trustees. The Trustees must approve or ratify the purchase of any
unrated securities or securities rated by only one rating organization. In
addition, investments in second tier securities are subject to the further
constraints that (i) no more than 5% of the Fund's assets may be invested in
such securities in the aggregate, and (ii) any investment in such securities of
one issuer is limited to the greater of 1% of the Fund's total assets or $1
million. The regulations also require the Trustees to establish procedures
which are reasonably designed to stabilize the net asset value per unit at
$1.00 for the Fund. However, there is no assurance that the Trust will be able
to meet this objective. The Trust's procedures include the determination of
the extent of deviation, if any, of the Fund's current net asset value per unit
calculated using available market quotations from the Fund's amortized cost
price per unit at such intervals as the Trustees deem appropriate and
reasonable in light of market conditions and periodic reviews of the amount of
the deviation and the methods used to calculate such deviation. In the event
that such deviation exceeds 1/2 of 1%, the Trustees are required to consider
promptly what action, if any, should be initiated, and, if the Trustees believe
that the extent of any deviation may result in material dilution or other
unfair results to shareholders, the Trustees are required to take such
corrective action as they deem appropriate to eliminate or reduce such dilution
or unfair results to the extent reasonably practicable. In addition, if the
Fund incurs a significant loss or liability, the Trustees have the authority to
reduce pro rata the number of shares of the Fund in each shareholder's account
and to offset each shareholder's pro rata portion of such loss or liability
from the shareholder's accrued but unpaid dividends or from future dividends.
PURCHASE AND REDEMPTION OF SHARES
The purchase and redemption price of shares is the net asset value of each
share. A Fund's securities are valued by the Manager pursuant to valuations
provided by an independent pricing service. Fund securities listed on a
securities exchange for which market quotations are available are valued at the
last quoted sale price on each Business Day or, if there is no such reported
sale, at the most recently quoted bid price. Unlisted securities for which
market quotations are readily available are valued at the most recently quoted
bid price. The pricing service may also use a matrix system to determine
valuations. This system considers such factors as security prices, yields,
maturities, call features, ratings and developments relating to specific
securities in arriving at valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Trust under the general
supervision of the Trustees.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in kind of readily marketable securities
held by a Fund in lieu of cash. Shareholders may incur brokerage charges on
the sale of any such securities so received in payment of redemptions.
However, a shareholder will at all times be entitled to aggregate cash
redemptions from all Funds of the Trust during any 90-day period of up to the
lesser of $250,000 or 1% of the Trust's net assets.
- 14 -
<PAGE> 46
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period during which
trading on the New York Stock Exchange is restricted, or during the existence
of an emergency (as determined by the SEC by rule or regulation) as a result of
which disposal or evaluation of the portfolio securities is not reasonably
practicable, or for such other periods as the SEC may by order permit. The
Trust also reserves the right to suspend sales of shares of the Funds for any
period during which the New York Stock Exchange, the Manager, the Distributor,
the Adviser, a Sub-Adviser and/or a Custodian are not open for business.
Fund securities may be traded on non-U.S. markets on days other than Business
Days or the net asset value of a Fund may be computed on days when such
non-U.S. markets are closed. In addition, non-U.S. markets may close at times
other than 4:00 p.m. Eastern time. As a consequence, the net asset value of a
share of a Fund may not reflect all events that may affect the value of a
Fund's non-U.S. securities unless the Fund advisers determine that such events
materially affect net asset value in which case net asset value will be
determined by consideration of other factors.
TAXES
QUALIFICATION AS A RIC
Shares of the Funds are offered only to separate accounts that fund variable
contracts. Refer to the prospectus for the variable contracts for a discussion
of the special taxation of insurance companies with respect to the separate
accounts and the variable contracts, and the holders thereof.
Each Fund intends to qualify and to continue to qualify for treatment as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended (the "Code"). In order to qualify for that treatment, the Fund must
distribute to variable contract owners for each taxable year at least 90% of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, or
any of the following, that were held for less than three months -- options,
futures or forward contracts (other than those on foreign currencies), or
foreign currencies (or options, futures or forward contracts thereon) that are
not directly related to the Fund's principal business of investing in
securities (or options and futures with respect thereto) ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash or cash
items, U.S. Government securities, securities of other RICs, and other
securities that, with respect to any one issuer, do not exceed 5% of the value
of the Fund's total assets and that do not represent more than 10% of the
outstanding voting securities of the issuer; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
As noted in the Prospectus, each Fund must, and intends to, comply with the
diversification requirements imposed by Section 817(h) of the Code and the
regulations thereunder. For information concerning the consequences of failure
to meet the requirements of Section 817(h), see the prospectus for the variable
contracts.
No Fund will be subject to the 4% Federal excise tax imposed on RICs that do
not distribute substantially all their income and gains each calendar year
because that tax does not apply to a RIC whose only shareholders are segregated
asset accounts of life insurance companies held in connection with variable
annuity contracts and/or variable life insurance policies.
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Fund
to shareholders and the ownership of shares may be subject to state and local
taxes.
FOREIGN TAXES
Dividends and interest received by a Fund may be subject to income, withholding
or other taxes imposed by non-U.S. countries and U.S. possessions that would
reduce the yield on a Fund's securities. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. If more
than 50% of the value of a Fund's total assets at the close of its taxable year
consists of securities of non-U.S. corporations, a Fund will be eligible to,
and will, file an election with the Internal Revenue Service that will enable
shareholders, in effect, to receive the benefit
- 15 -
<PAGE> 47
of the foreign tax credit with respect to any non-U.S. countries' and U.S.
possessions' income taxes paid by a Fund. Pursuant to the election, a Fund
will treat those taxes as additional dividends paid to its shareholders. Each
shareholder will be required to include a proportionate share of those taxes in
gross income as income received from a non-U.S. source and must treat the
amount so included as if the shareholder had paid the foreign tax directly.
The shareholder may then either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against the shareholder's
federal income tax. If a Fund makes the election, it will report annually to
its shareholders the respective amounts per share of a Fund's income from
sources within, and taxes paid to, non-U.S. countries and U.S. possessions.
The foregoing is only a general summary of some of the important Federal income
tax considerations generally affecting the Funds and their shareholders. No
attempt is made to present a complete explanation of the Federal tax treatment
of the Funds' activities, and this discussion and the discussion in the
prospectuses and/or statements of additional information for variable contracts
are not intended as a substitute for careful tax planning. Accordingly,
potential investors are urged to consult their own tax advisers for more
detailed information and for information regarding any state, local, or
non-U.S. taxes applicable to the variable contracts and the holders thereof.
FUND TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the advisers are responsible for placing orders to
execute Fund transactions. In placing orders, it is the Trust's policy to seek
to obtain the best execution taking into account such factors as price
(including the applicable dealer spread), size, type and difficulty of the
transaction involved, the firm's general execution and operational facilities,
and the firm's risk in positioning the securities involved. While the advisers
generally seek reasonably competitive spreads or commissions, the Trust will
not necessarily be realizing the lowest spread or commission available. The
Trust will not purchase portfolio securities from any affiliated person acting
as principal except in conformity with the regulations of the SEC.
It is expected that the Funds may execute brokerage or other agency
transactions through the Distributor, a registered broker-dealer, for a
commission, in conformity with the 1940 Act, the Securities Exchange Act of
1934, as amended, and rules of the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for a Fund on an exchange if a written contract is in
effect between the Distributor and the Trust expressly permitting the
Distributor to receive and retain such compensation. These provisions further
require that commissions paid to the Distributor by the Trust for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commission to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures periodically. In addition, the
Fund may direct commission business to one or more designated broker-dealers,
including the Distributor, in connection with such broker-dealer's payment of
certain of the Fund's expenses. However, if an expense cap arrangement is then
in place for a Fund, the Fund's advisers are not permitted to direct brokerage
to pay for Fund expenses.
- 16 -
<PAGE> 48
For the fiscal year ended December 31, 1995, the Funds paid the following
brokerage fees:
<TABLE>
<CAPTION>
================================================================================================================================
% of Total $
Total $ Amount Amount
of Brokerage Transactions
Total $ Amount of Commissions % of Total involving Total $ Total $ Amount
Brokerage Paid to Brokerage Brokerage Amount of of Brokerage
Commissions Paid Affiliates in Commissions Commission Brokerage Commissions
in FYE 12/31/95 FYE 12/31/95 paid to paid to Transactions Paid for
Funds Distributor Distributor for Research Research
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International $ 7,999 $ 4,857 0.00% 90.05% $ --- $ ---
Growth Fund
- --------------------------------------------------------------------------------------------------------------------------------
Growth Fund $ 3,194 $ 376 0.00% 0.00% $ --- $ ---
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive $ 946 $ 31 3.24% 97.39% $ --- $ ---
Growth Fund
- --------------------------------------------------------------------------------------------------------------------------------
Income Equity $ 2,670 $ 73 1.27% 91.07% $ --- $ ---
Fund
- --------------------------------------------------------------------------------------------------------------------------------
Intermediate $ 100 $ 100 100.00% 100.00% $ --- $ ---
Fixed Income
Fund
- --------------------------------------------------------------------------------------------------------------------------------
Money Market $ --- $ --- 0.00% 0.00% $ --- $ ---
Fund
================================================================================================================================
</TABLE>
The money market securities in which a Fund invests are traded primarily in the
over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the
Adviser and each Sub-Adviser will deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting
as principal for their own account. On occasion, securities may be purchased
directly from the issuer. Money market securities are generally traded on a
net basis and do not normally involve either brokerage commissions or transfer
taxes. The cost of executing portfolio transactions in such over-the-counter
securities for a Fund will primarily consist of dealer spreads between the bid
and asked prices.
It is expected that the portfolio turnover rate for each Fund will normally not
exceed 100% for a Fund except for the Intermediate Fixed Income Fund and Growth
Fund. The portfolio turnover rate for a Fund would exceed 100% if all of its
securities, exclusive of U.S. Government securities and other securities whose
maturities at the time of acquisition are one year or less, are replaced in the
period of one year. Turnover rates may vary from year to year and may be
affected by cash requirements for redemptions and by requirements which enable
the Fund to receive favorable tax treatment.
As stated above, each adviser's overriding objective in effecting portfolio
transactions for the Fund it advises is to seek to obtain the best combination
of price and execution. However, consistent with the provisions of the Rules
of Fair Practice of the National Association of Securities Dealers, the
Advisers may, in selecting brokers and dealers to effect portfolio transactions
for their respective Funds, and where more than one broker or dealer is
believed capable of providing the best combination of price and execution with
respect to a particular transaction, select a broker or dealer in recognition
of its sales of variable contracts offered by Insurers. Each adviser maintains
an internal procedure to identify broker and dealers which have sold variable
contracts, and the amount of variable contracts sold by them. Neither the Fund
nor any adviser has entered into any agreement with, or made any commitment to,
any broker or dealer which would bind the adviser(s) or the Funds to compensate
any broker or dealer, directly or indirectly, for sales of variable contracts.
The advisers do not cause their respective Funds to pay brokerage commissions
higher than those obtainable from other brokers or dealers in recognition of
such sales of variable contracts.
In light of the fact that the adviser may also provide advisory services to
Insurers, and to other advisory accounts that may or may not be registered
investment companies, securities of the same issuer may be included, from time
to time, in the Funds and these other entities where it is consistent with
their respective investment objectives. If these entities desire to buy or
sell the same portfolio security at about the same time, combined purchases and
sales may be made, and in such event the security purchased or sold normally
will be allocated at the average price and as nearly as practicable on a
pro-rata basis in proportion to the amounts desired to be purchased or sold by
each
- 17 -
<PAGE> 49
entity. While it is possible that in certain instances this procedure could
adversely affect the price or number of shares involved in the Funds'
transactions, it is believed that the procedure generally contributes to better
overall execution of the Funds' portfolio transactions.
Because an adviser's personnel may also provide investment advisory services to
Insurers, and other advisory clients, it may be difficult to quantify the
relative benefits received by the Trust and these other entities from research
provided by brokers or dealers.
The Trust does not expect to use one particular dealer, but advisers may,
consistent with the interests of the Funds, select brokers on the basis of the
research services they provide to the adviser. Such services may include
analysis of the business or prospects of a company, industry or economic sector
or statistical and pricing services. Information so received by the advisers
will be in addition to and not in lieu of the services required to be performed
by an adviser under the applicable Advisory Agreement or Sub-Advisory
Agreement. If in the judgment of a Fund's advisers the Funds, or other
accounts managed by the Adviser, will be benefitted by supplemental research
services, the adviser is authorized to pay brokerage commissions to a broker
furnishing such services which are in excess of commissions which another
broker may have charged for effecting the same transaction. The expenses of an
adviser will not necessarily be reduced as a result of the receipt of such
supplemental information.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of each Fund, each of which represents an equal proportionate interest
in that Fund. Each share upon liquidation entitles a shareholder to a pro rata
share in the net assets of that Fund. Shareholders have no preemptive rights.
The Declaration of Trust provides that the Trustees of the Trust may create
additional series of shares or separate classes of portfolios. Share
certificates representing the shares will not be issued.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and shall not be liable for any neglect or wrongdoing of
any officer, agent, employee, investment adviser, or administrator. The
Declaration of Trust also provides that the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with
actual or threatened litigation in which they may be involved because of their
offices with the Trust unless it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in the Declaration of Trust shall protect or indemnify a Trustee
against any liability for his wilful misfeasance, bad faith, gross negligence
or reckless disregard of his duties.
VOTING
Where the Prospectuses for the Funds or Statement of Additional Information
state that an investment limitation or a fundamental policy may not be changed
without shareholder approval, such approval means the vote of (i) 67% or more
of the Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by Proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a Trust could, under
certain circumstances, be held personally liable as partners for the
obligations of the Trust. Even if, however, the Trust were held to be a
partnership, the possibility of the shareholders' incurring financial loss for
that reason appears remote because the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because, the Declaration of Trust provides for indemnification
out of the Trust property for any shareholders held personally liable for the
obligations of the Trust.
- 18 -
<PAGE> 50
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The Trust sells its shares to insurance companies as the funding vehicle for
variable contracts. Pursuant to agreements with the Trust, insurance companies
are required to vote such shares in accordance with the instructions of
variable contract owners.
As of April 20, 1995, SEI Corporation, 680 East Swedesford Road, Wayne, PA
19087, owned more than 90% of the outstanding shares of each class of stock.
The remaining shares were held by Providian Life and Health Insurance, P.O. Box
32830, Louisville, KY 40232-2830.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, 1601 Market Street,
Philadelphia, PA 19103 serves as auditor of the Trust.
CUSTODIANS
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110,
serves as Custodian of the assets of the International Growth Fund. CoreStates
Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia, PA 19101,
acts as Custodian of the assets of each Fund except the International Growth
Fund. Each Custodian holds cash, securities and other assets of the Funds for
which it acts as Custodian, as required by the Investment Company Act of 1940,
as amended.
FINANCIAL STATEMENTS
The audited financial statements of the Trust for the fiscal year ending
December 31, 1995 are included herein.
- 19 -
<PAGE> 51
STATEMENT OF NET ASSETS
================================================================================
Insurance Investment Products Trust -- December 31, 1995
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCKS -- 97.0%
AUSTRALIA -- 4.5%
Australian & New Zealand Bank 3,000 $ 14,065
Caltex Australia 2,500 9,863
National Australia Bank 1,900 17,082
Westpac Banking 3,600 15,942
---------
56,952
---------
CANADA -- 3.0%
Bank of Montreal 300 6,813
Canadian Imperial Bank of Commerce 400 11,905
Imasco Holdings 600 11,648
Royal Bank of Canada 300 6,841
---------
37,207
---------
FRANCE -- 11.5%
CGIP 50 9,684
Christian Dior 150 16,198
Cie de Saint Gobain 100 11,085
Elf Aquitaine 200 14,758
Elf Gabon 50 8,784
GTM Entrepose 104 7,306
Interbail 100 5,400
Marine Wendel 100 7,322
Nord Est 400 9,277
Peugeot 50 6,606
Poliet-ex Lambert Freres 100 8,136
Saint Louis Bouchon 50 13,294
Total Compaigne, Class B 250 16,899
Usinor Sacilor* 750 9,832
---------
144,581
---------
GERMANY -- 4.6%
BASF 50 11,273
Bayer 50 13,290
Hoechst 50 13,612
Veba 450 19,286
---------
57,461
---------
HONG KONG -- 3.5%
HSBC Holdings 1,600 24,211
Jardine International Motor 8,000 9,105
Lai Sun Garment 11,000 10,670
---------
43,986
---------
ITALY -- 1.3%
Comau Finanziaria 3,100 3,423
STET D Risp 3,800 7,768
STET-Societa Finanziara Telefonica 2,000 5,666
---------
16,857
---------
JAPAN -- 32.2%
Catena 1,000 13,563
Chiyoda Fire & Marine 2,000 11,432
Cosmo Oil 2,000 10,928
Daikyo 2,000 14,920
Daito Trust Construction 1,000 11,820
Fuji Photo Film 1,000 28,870
Hitachi 2,000 20,151
Honda Motor 1,000 20,636
Jaccs 1,000 10,366
KOA 2,000 12,246
Kyushu Electric Power 1,000 23,639
Long Term Credit Bank 2,000 17,051
Matsushita Electric 1,000 16,276
Mitsui Marine & Fire 2,000 14,261
Mitsui Trust & Banking 1,000 10,948
Nippondenso 1,000 18,698
Nippon Shinpan 2,000 15,113
Nissan Fire & Marine Insurance 2,000 14,028
Nissan Motors 2,000 15,365
Pioneer Electronics 1,000 18,310
Renown Look* 2,000 11,335
Sakura Bank 1,000 12,691
Sekisui House 1,000 12,788
Showa Shell Sekiyo 1,000 8,380
Sumitomo Realty & Development 1,000 7,072
Tohoku Electric Power 500 12,062
Toshiba 2,000 15,675
Toyota Tsusho 1,000 6,452
---------
405,076
---------
MALAYSIA -- 5.3%
Arab-Malaysian Merchant Bank 1,000 11,421
Edaran Otomobil 1,000 7,522
Malaysian Airline System 3,000 9,747
MBF Capital 11,000 11,133
Oriental Holdings 2,000 10,161
Rashid Hussain 3,000 8,979
Sime Darby Malaysia 3,000 7,975
---------
66,938
---------
NETHERLANDS -- 6.0%
ABN-Amro Holdings 411 18,759
European Vinyls 300 7,811
Hoogovens & Staalf 300 10,059
International Nederlanden 307 20,548
KPN 521 18,965
---------
76,142
---------
NEW ZEALAND -- 0.8%
Lion Nathan 4,100 9,780
---------
NORWAY -- 0.8%
Den Norske Bank, Class B 3,700 9,716
---------
</TABLE>
5
<PAGE> 52
STATEMENT OF NET ASSETS
================================================================================
Insurance Investment Products Trust -- December 31, 1995
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
Shares/ Market
Description Face Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
SPAIN -- 1.3%
Telefonica de Espana 1,200 $ 16,627
----------
SWEDEN -- 2.3%
SSAB, Class B 800 8,081
Stora Kopparberg, Class B 1,000 11,986
Sydkraft, Class C 500 8,896
----------
28,963
----------
SWITZERLAND -- 6.0%
Ciba Geigy 20 17,621
CS Holdings 80 8,212
Elektrowatt, Class B 40 14,653
Roche Holdings 3 23,763
Schweizerische Ruckversicherungs 10 11,596
----------
75,845
----------
UNITED KINGDOM -- 13.9%
Anglian Water 1,400 13,154
British Gas 3,700 14,595
British Steel 4,600 11,627
General Accident 1,000 10,110
Guardian Royal Exchange 3,900 16,717
Hanson 3,700 11,062
National Westminster Bank 1,700 17,135
RJB Mining 2,000 17,021
Royal Insurance 2,400 14,238
South West Water 1,500 12,160
Sun Alliance Group 2,000 11,601
Tesco 3,000 13,838
Yorkshire Water 1,300 11,912
----------
175,170
----------
Total Foreign Common Stocks
(Cost $1,124,197) 1,221,301
----------
FOREIGN PREFERRED STOCKS -- 0.7%
AUSTRALIA -- 0.7%
Newscorp 2,000 9,347
----------
Total Foreign Preferred Stocks
(Cost $7,522) 9,347
----------
REPURCHASE AGREEMENT -- 0.0%
Lehman Brothers
5.540%, dated 12/29/95, matures
01/02/96, repurchase price $503
(collateralized by a U.S. Treasury
Note, 5.625%, due 10/31/97, par
value $509, market value $518) $503 503
----------
Total Repurchase Agreement
(Cost $503) 503
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------------
<S> <C>
Total Investments -- 97.7%
(Cost $1,132,222) $1,231,151
----------
OTHER ASSETS AND LIABILITIES -- 2.3%
Other Assets and Liabilities, Net 28,372
----------
NET ASSETS:
Portfolio shares (unlimited
authorization -- no par value)
based on 115,613 outstanding shares
of beneficial interest 1,158,678
Accumulated net realized gain on
investments 2,260
Accumulated net realized loss on
forward foreign currency contracts
and foreign currency transactions (609)
Net unrealized appreciation of
investments 98,929
Net unrealized depreciation of
forward foreign currency contracts,
foreign currency and translation
of other assets and liabilities in
foreign currencies (130)
Undistributed net investment income 395
----------
Total Net Assets -- 100.0% $1,259,523
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 10.89
==========
</TABLE>
* Non-income producing security
GROWTH FUND
<TABLE>
<S> <C> <C>
COMMON STOCK -- 96.4%
AIRCRAFT -- 1.8%
Allied Signal 580 $ 27,550
----------
AUTOMOTIVE -- 0.9%
Magna International, Class A 330 14,272
----------
BANKS -- 0.4%
Citicorp 100 6,725
----------
BROADCASTING, NEWSPAPERS
& ADVERTISING -- 4.4%
Cox Communications* 1,140 22,230
Liberty Media Group* 590 15,856
Tele-Communications, Class A* 1,460 29,018
----------
67,104
----------
CHEMICALS -- 4.4%
Monsanto 260 31,850
Morton International 500 17,938
Rohm & Haas 270 17,381
----------
67,169
----------
</TABLE>
6
<PAGE> 53
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS EQUIPMENT -- 3.0%
DSC Communications* 300 $ 11,062
ITT* 175 9,275
ITT Industries* 175 4,200
Motorola 220 12,540
Nokia, Class A, ADR 250 9,719
----------
46,796
----------
COMPUTERS & SERVICES -- 5.4%
Cisco Systems* 540 40,297
Compaq Computer* 840 40,320
Silicon Graphics* 100 2,750
----------
83,367
----------
DRUGS -- 8.7%
Amgen* 430 25,531
Merck 840 55,230
Pfizer 850 53,550
----------
134,311
----------
ENTERTAINMENT -- 2.5%
Walt Disney 650 38,350
----------
FINANCIAL SERVICES -- 7.6%
Federal Home Loan Mortgage 390 32,565
Federal National Mortgage Association 175 21,722
ITT Hartford Group* 75 3,628
Merrill Lynch 200 10,200
Travelers 780 49,043
----------
117,158
----------
FOOD, BEVERAGE & TOBACCO -- 10.7%
Coca Cola 350 25,987
PepsiCo 1,120 62,580
Philip Morris 830 75,115
----------
163,682
----------
GAS/NATURAL GAS -- 1.3%
Enron 510 19,444
----------
HOUSEHOLD PRODUCTS -- 4.2%
Colgate-Palmolive 430 30,208
Gillette 650 33,881
----------
64,089
----------
INSURANCE -- 9.4%
American International Group 420 38,850
General Re 170 26,350
Healthsource* 420 15,120
NAC Re 485 17,460
PMI Group 500 22,625
United Healthcare 370 24,235
----------
144,640
----------
MACHINERY -- 3.4%
General Electric 580 41,760
General Instrument* 450 10,519
----------
52,279
----------
MEDICAL PRODUCTS & SERVICES -- 2.1%
Columbia/HCA Healthcare 640 32,480
----------
MISCELLANEOUS BUSINESS SERVICES -- 5.8%
3Com* 230 10,724
DST Systems* 400 11,400
First Data 100 6,687
Informix* 640 19,200
Oracle Systems* 965 40,892
----------
88,903
----------
RAILROADS -- 1.4%
Burlington Northern Santa Fe 190 14,820
Union Pacific 110 7,260
----------
22,080
----------
RETAIL -- 7.3%
Autozone* 190 5,486
Federated Department Stores* 250 6,875
Home Depot 1,000 47,875
Lowes 600 20,100
McDonald's 700 31,588
----------
111,924
----------
SEMI-CONDUCTORS/INSTRUMENTS -- 5.1%
Applied Materials* 410 16,144
Intel 940 53,345
National Semiconductor* 400 8,900
----------
78,389
----------
TELEPHONES & TELECOMMUNICATION -- 6.6%
Airtouch Communications* 1,140 32,205
AT&T 1,070 69,282
----------
101,487
----------
Total Common Stock
(Cost $1,196,659) 1,482,199
----------
Total Investments -- 96.4%
(Cost $1,196,659) 1,482,199
----------
</TABLE>
7
<PAGE> 54
STATEMENT OF NET ASSETS
================================================================================
Insurance Investment Products Trust -- December 31, 1995
<TABLE>
<CAPTION>
GROWTH FUND
- --------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES -- 3.6%
Other Assets and Liabilities, Net $ 54,812
----------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based
on 121,300 outstanding shares of
beneficial interest 1,237,245
Accumulated net realized gain on
investments 14,230
Net unrealized appreciation of
investments 285,540
Distributions in excess of net
investment income (4)
----------
Total Net Assets -- 100.0% $1,537,011
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 12.67
==========
</TABLE>
* Non-income producing security
ADR American Depository Receipt
AGGRESSIVE GROWTH FUND
<TABLE>
<S> <C> <C>
COMMON STOCK -- 97.5%
AIR TRANSPORTATION -- 0.8%
Atlas Air* 400 $ 6,700
----------
APPAREL/TEXTILES -- 4.9%
Nautica Enterprises* 300 13,125
St. John Knits 200 10,625
Tommy Hilfiger* 400 16,950
----------
40,700
----------
AUTOMOTIVE -- 0.8%
Allen Group 300 6,712
----------
BROADCASTING, NEWSPAPERS
& ADVERTISING -- 1.6%
Clear Channel Communications* 300 13,237
----------
COMMUNICATIONS EQUIPMENT -- 4.8%
Comverse Technology* 300 6,000
DSP Communications* 200 8,725
Kemet* 400 9,550
Microcom* 300 7,800
Ultratech Stepper* 300 7,725
----------
39,800
----------
COMPUTERS & SERVICES -- 7.6%
Alantec* 200 11,650
Electroglas 400 9,800
Hyperion Software* 600 12,750
Optical Data Systems* 200 5,050
StorMedia* 300 10,950
S3* 500 8,812
Transaction Systems Architects,
Class A* 100 3,370
----------
62,382
----------
DRUGS -- 1.7%
Idexx Laboratories* 300 14,100
----------
ENTERTAINMENT -- 1.6%
Regal Cinemas* 450 13,387
----------
ENVIRONMENTAL SERVICES -- 1.8%
United Waste Systems* 400 14,900
----------
INSURANCE -- 3.7%
Compdent* 300 12,450
Phycor* 350 17,697
----------
30,147
----------
MACHINERY -- 6.3%
FSI International* 400 8,100
Gasonics International* 400 5,400
Helix Technology 200 7,900
Input/Output* 200 11,550
MSC Industrial Direct* 200 5,500
Zebra Technologies, Class A* 400 13,600
----------
52,050
----------
MEASURING DEVICES -- 4.4%
Cognex* 600 20,850
Credence Systems* 300 6,863
Epic Design Technology 400 8,400
----------
36,113
----------
MEDICAL PRODUCTS & SERVICES -- 3.7%
Gulf South Medical Supply* 400 12,100
MedPartners/Mullikin* 200 6,600
Physician Reliance Network* 300 11,925
----------
30,625
----------
MISCELLANEOUS BUSINESS SERVICES -- 14.8%
Acxiom* 400 10,950
Alternative Resources* 200 6,050
Cambridge Technology Partners* 300 17,250
Davidson & Associates* 200 4,400
Electronics For Imaging* 400 17,500
McAfee Associates* 350 15,356
Medic Computer Systems* 100 6,050
National Data 200 4,950
Netmanage* 300 6,975
Project Software & Development* 300 10,463
Rational Software* 400 8,950
Remedy* 100 5,925
Shiva* 100 7,275
----------
122,094
----------
</TABLE>
8
<PAGE> 55
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS CONSUMER SERVICES -- 4.8%
Accustaff* 400 $ 17,600
Corrections Corporation of America* 600 22,275
----------
39,875
----------
MISCELLANEOUS MANUFACTURING -- 2.0%
Blyth Industries* 400 11,800
Cable Design Technologies* 100 4,400
----------
16,200
----------
PRINTING & PUBLISHING -- 1.5%
Gartner Group, Class A* 250 11,969
----------
PROFESSIONAL SERVICES -- 1.1%
Tetra Tech* 400 9,100
----------
RAILROADS -- 0.8%
Wisconsin Central Transportation* 100 6,575
----------
REAL ESTATE -- 0.8%
Amresco 500 6,375
----------
REPAIR SERVICES -- 0.8%
Oxford Resources, Class A* 300 6,750
----------
RETAIL -- 10.3%
Boston Chicken* 400 12,850
CDW Computer Centers* 200 8,100
Corporate Express* 350 10,544
Discount Auto Parts* 300 9,338
Express Scripts* 200 10,200
General Nutrition* 100 2,300
Omnicare 300 13,425
Papa John's International* 200 8,237
Sunglass Hut International* 400 9,500
----------
84,494
----------
SEMI-CONDUCTORS/INSTRUMENTS -- 3.4%
Actel* 500 5,375
Burr-Brown* 300 7,650
Integrated Process Equipment* 200 4,700
Sanmina* 200 10,375
----------
28,100
----------
TELEPHONES & TELECOMMUNICATION -- 4.7%
Aspect Telecommunications* 300 10,050
Cidco* 200 5,100
Coherent Communications Systems* 400 7,700
LCI International* 400 8,200
Vtel* 400 7,400
----------
38,450
----------
TESTING LABORATORIES -- 2.0%
Quintiles Transnational* 400 16,400
----------
TRANSPORTATION SERVICES -- 1.5%
Fritz* 300 12,450
----------
WHOLESALE -- 5.3%
Global Village Communication* 300 5,813
INSO* 200 8,500
Physician Sales & Services* 700 19,950
U.S. Office Products* 400 9,100
----------
43,363
----------
Total Common Stock
(Cost $633,130) 803,048
----------
REPURCHASE AGREEMENT -- 4.4%
Lehman Brothers
5.540%, dated 12/29/95, matures
01/02/96, repurchase price
$36,479 (collateralized by U.S.
Treasury Note, 5.625%, due
10/31/97, par value $36,953,
market value $37,550) $36,457 36,457
----------
Total Repurchase Agreement
(Cost $36,457) 36,457
----------
Total Investments -- 101.9%
(Cost $669,587) 839,505
----------
OTHER ASSETS AND LIABILITIES -- (1.9)%
Other Assets and Liabilities, Net (15,791)
----------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 63,125 outstanding shares of
beneficial interest 640,758
Net unrealized appreciation of
investments 169,918
Undistributed net investment income 13,038
----------
Total Net Assets -- 100.0% $ 823,714
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 13.05
==========
</TABLE>
* Non-income producing security
9
<PAGE> 56
STATEMENT OF NET ASSETS
================================================================================
Insurance Investment Products Trust -- December 31, 1995
<TABLE>
<CAPTION>
INCOME EQUITY FUND
- --------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 98.5%
AEROSPACE & DEFENSE -- 2.3%
Litton Industries* 150 $ 6,675
Loral 200 7,075
Raytheon 300 14,175
Rockwell International 150 7,931
----------
35,856
----------
AIR TRANSPORTATION -- 0.6%
AMR* 75 5,569
Delta Air Lines 50 3,694
----------
9,263
----------
AIRCRAFT -- 2.0%
Lockheed Martin 100 7,900
McDonnell Douglas 250 23,000
----------
30,900
----------
ALUMINUM -- 0.7%
Aluminum Company of America 150 7,931
Reynolds Metals 50 2,831
----------
10,762
----------
APPAREL/TEXTILES -- 0.3%
Springs Industries, Class A 100 4,138
----------
AUTOMOTIVE -- 4.4%
Chrysler 200 11,075
Dana 150 4,388
Eaton 200 10,725
Ford Motor 650 18,850
General Motors 350 18,506
Paccar 100 4,212
----------
67,756
----------
BANKS -- 14.8%
Ahmanson H F 350 9,275
Bank of Boston* 150 6,938
Bankamerica 350 22,662
Chase Manhattan 100 6,063
Chemical Banking 450 26,437
Citicorp 200 13,450
First Chicago NBD 500 19,750
First Interstate Bancorp 100 13,650
First Union 300 16,688
Nationsbank 400 27,850
Republic New York 150 9,319
Southtrust 450 11,531
Star Banc 100 5,950
Union Bank 100 5,425
Union Planters 350 11,156
Wells Fargo 100 21,600
----------
227,744
----------
BUSINESS SERVICES -- 0.6%
Pittston Services 300 9,413
----------
CHEMICALS -- 3.6%
Dow Chemical 225 15,834
Eastman Chemical 225 14,091
Lyondell Petrochemical 150 3,431
Union Carbide 400 15,000
Wellman 300 6,825
----------
55,181
----------
COMMUNICATIONS EQUIPMENT -- 1.2%
Harris 150 8,194
Sprint 250 9,969
----------
18,163
----------
COMPUTERS & SERVICES -- 3.6%
IBM 450 41,288
Seagate Technology 100 4,750
Sun Microsystems 200 9,125
----------
55,163
----------
CONSTRUCTION -- 0.6%
Vulcan Materials 150 8,644
----------
CONSUMER - APPLIANCE -- 0.3%
Black & Decker 150 5,288
----------
CONSUMER - LEISURE -- 0.3%
Outboard Marine 200 4,075
----------
DRUGS -- 2.0%
Bristol-Myers Squibb 350 30,056
----------
ELECTRICAL UTILITIES -- 9.3%
Baltimore Gas & Electric 200 5,700
Central & South West 250 6,969
Consolidated Edison of New York 400 12,800
Detroit Edison 350 12,075
DQE 400 12,300
Entergy 400 11,700
General Public Utilities 400 13,600
Peco Energy 350 10,544
Pinnacle West Capital 500 14,375
Public Service Enterprise 300 9,187
SCE 650 11,538
Southern 250 6,156
Unicom 500 16,375
----------
143,319
----------
ELECTRONICS -- 0.6%
General Motors, Class H 200 9,825
----------
ENTERTAINMENT -- 0.3%
King World Productions* 100 3,888
----------
</TABLE>
10
<PAGE> 57
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES -- 5.1%
Allstate* 770 $ 31,666
American Express 250 10,344
Dean Witter Discover 250 11,750
Travelers 400 25,150
----------
78,910
----------
FOOD, BEVERAGE & TOBACCO -- 1.1%
CPC International 100 6,863
IBP 200 10,100
----------
16,963
----------
GAS/NATURAL GAS -- 2.5%
Coastal 100 3,725
National Fuel Gas 250 8,406
Oneok 100 2,287
Panhandle Eastern 450 12,544
Williams 250 10,969
----------
37,931
----------
HOUSEHOLD PRODUCTS -- 0.2%
Clorox 50 3,581
----------
INSURANCE -- 4.6%
Cigna 250 25,812
Foundation Health* 100 4,300
Loews 100 7,837
Old Republic International 350 12,425
Providian 350 14,263
U.S. Life 225 6,722
----------
71,359
----------
MACHINERY -- 2.2%
Cummins Engine 175 6,475
Harnischfeger Industries 150 4,987
Parker Hannifin 150 5,138
Textron 150 10,125
Tyco International 200 7,125
----------
33,850
----------
MEDICAL PRODUCTS & SERVICES -- 1.4%
Becton Dickinson 250 18,750
Vencor* 100 3,250
----------
22,000
----------
METALS & MINING -- 0.7%
Asarco 200 6,400
Magma Copper* 150 4,181
----------
10,581
----------
MISCELLANEOUS BUSINESS SERVICES -- 0.3%
Flightsafety International 100 5,025
----------
OIL SERVICE - ENERGY -- 0.4%
Tidewater 175 5,513
----------
PAPER & PAPER PRODUCTS -- 2.5%
Bowater 125 4,438
Champion International 250 10,500
Federal Paper Board 200 10,375
International Paper 150 5,681
James River Corporation of Virginia 100 2,412
Temple-Inland 100 4,413
----------
37,819
----------
PETROLEUM REFINING -- 10.2%
Amoco 350 25,156
Exxon 825 66,103
Kerr-McGee 150 9,525
Mobil 500 56,000
----------
156,784
----------
PHOTOGRAPHIC EQUIPMENT
& SUPPLIES -- 1.1%
Eastman Kodak 250 16,750
----------
PRINTING & PUBLISHING -- 0.5%
New York Times, Class A 100 2,962
Washington Post, Class B 15 4,230
----------
7,192
----------
RAILROADS -- 2.3%
Conrail 250 17,500
CSX 400 18,250
----------
35,750
----------
RESTAURANTS -- 0.2%
Wendys International 150 3,187
----------
RETAIL -- 3.2%
Officemax * 400 8,950
Sears Roebuck 400 15,600
TJX Companies 700 13,212
Tandy 200 8,300
Vons Companies * 100 2,825
----------
48,887
----------
RUBBER & PLASTIC -- 0.3%
Goodyear Tire & Rubber 100 4,537
----------
SPECIALTY MACHINERY -- 0.3%
Tecumseh Products, Class A 75 3,881
----------
</TABLE>
11
<PAGE> 58
STATEMENT OF NET ASSETS
================================================================================
Insurance Investment Products Trust -- December 31, 1995
<TABLE>
<CAPTION>
INCOME EQUITY FUND
- --------------------------------------------------------------------------------
Shares/ Market
Description Face Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
TELEPHONES & TELECOMMUNICATION -- 11.9%
Alltel 250 $ 7,375
Ameritech 700 41,300
Bellsouth 800 34,800
Cincinnati Bell 200 6,950
GTE 400 17,600
MCI Communications 350 9,144
NYNEX 550 29,700
Pacific Telesis 450 15,131
Southern New England 300 11,925
Worldcom* 250 8,812
----------
182,737
----------
Total Common Stock
(Cost $1,246,871) 1,512,671
----------
REPURCHASE AGREEMENT -- 2.3%
Lehman Brothers
5.470%, dated 12/29/95, matures
01/02/96, repurchase price $35,751
(collateralized by U.S. Treasury Note,
7.375%, due 11/15/97, par value
$35,181, market value $36,807) $35,729 35,729
----------
Total Repurchase Agreement
(Cost $35,729) 35,729
----------
Total Investments -- 100.8%
(Cost $1,282,600) 1,548,400
----------
OTHER ASSETS AND LIABILITIES -- (0.8)%
Other Assets and Liabilities, Net (12,509)
----------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 124,486 outstanding shares of
beneficial interest 1,262,810
Accumulated net realized gain on
investments 7,278
Net unrealized appreciation of
investments 265,800
Undistributed net investment income 3
----------
Total Net Assets -- 100.0% $1,535,891
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 12.34
==========
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
INTERMEDIATE FIXED INCOME
FUND
- --------------------------------------------------------------------------------
Face Market
Description Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 94.9%
U.S. Treasury Bill
5.330%, 01/18/96 $390,000 $ 389,025
U.S. Treasury Bond
7.500%, 11/15/24 56,000 67,241
U.S. Treasury Notes
7.500%, 02/15/05 650,000 736,782
5.880%, 11/15/05 20,000 20,444
U.S. Treasury STRIPS
0.000%, 08/15/00 100,000 21,976
----------
Total U.S. Treasury Obligations
(Cost $1,141,620) 1,235,468
----------
REPURCHASE AGREEMENT -- 4.7%
Lehman Brothers
5.540%, dated 12/29/95, matures
01/02/96, repurchase price
$62,008 (collateralized by U.S.
Treasury Note, 5.625%, due
10/31/97, par value $62,816,
market value $63,829) 61,970 61,970
----------
Total Repurchase Agreement
(Cost $61,970) 61,970
----------
Total Investments -- 99.6%
(Cost $1,203,590) 1,297,438
----------
OTHER ASSETS AND LIABILITIES -- 0.4%
Other Assets and Liabilities, Net 4,878
----------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 119,267 outstanding shares of
beneficial interest 1,205,243
Accumulated net realized gain on
investments 3,224
Net unrealized appreciation of
investments 93,848
Undistributed net investment income 1
----------
Total Net Assets -- 100.0% $1,302,316
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 10.92
==========
</TABLE>
STRIPS Separately Trading of Registered Interest
and Principal of Securities
12
<PAGE> 59
================================================================================
<TABLE>
<CAPTION>
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Face
Description Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT BONDS -- 101.3%
FFCB Discount Note
5.760%, 01/23/96 $ 10,000 $ 9,965
FHLB Discount Note
5.748%, 01/19/96 100,000 99,720
FHLMC Discount Notes
5.743%, 01/18/96 290,000 289,233
5.543%, 02/16/96 210,000 208,546
----------
Total Government Bonds
(Cost $607,464) 607,464
----------
Total Investments -- 101.3%
(Cost $607,464) 607,464
----------
OTHER ASSETS AND LIABILITIES -- (1.3)%
Other Assets and Liabilities, Net (7,966)
----------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 599,500 outstanding shares of
beneficial interest 599,500
Accumulated net realized loss on
investments (2)
----------
Total Net Assets -- 100.0% $ 599,498
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 1.00
==========
</TABLE>
FFCB Federal Farm Credit Bank
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 60
STATEMENT OF OPERATIONS
================================================================================
Insurance Investment Products Trust -- for the period ended December 31, 1995
<TABLE>
<CAPTION>
------------- -------
INTERNATIONAL
GROWTH GROWTH
FUND(1) FUND(1)
------------- -------
<S> <C> <C>
INVESTMENT:
Dividends $ 34,168 $ 16,828
Interest 2,637 2,242
Less: Foreign taxes withheld (3,333) --
-------- --------
Total investment income 33,472 19,070
-------- --------
EXPENSES:
Management fees 5,636 5,202
Less management fees waived (5,636) (5,202)
Expense reimbursement from management (45,438) (24,406)
Investment advisory fees 4,862 4,624
Custody fees 23,486 2,312
Professional fees 14,116 16,845
Printing fees 3,176 3,543
Wire agent fees 66 74
Registration fees 445 505
Trustees fees 5,588 6,236
Pricing fees 6,141 26
Miscellaneous fees 27 35
Amortization of deferred organizational costs 1,768 1,768
-------- --------
Total expenses 14,237 11,562
-------- --------
NET INVESTMENT INCOME (LOSS) 19,235 7,508
-------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from security transactions 40,197 60,687
Net realized loss on foreign currency contracts and
foreign currency transactions (11,111) --
Net change in unrealized appreciation of investments 98,929 285,540
Net change in unrealized depreciation of foreign currency
and translation of other assets and liabilities in
foreign currencies (130) --
-------- --------
Total net realized and unrealized gain (loss) on investments 127,885 346,227
-------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $147,120 $353,735
======== ========
</TABLE>
(1) COMMENCED OPERATIONS ON FEBRUARY 10, 1995.
(2) COMMENCED OPERATIONS ON FEBRUARY 13, 1995.
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 61
================================================================================
<TABLE>
<CAPTION>
---------- ------- ------------ -------
INTERMEDIATE
AGGRESSIVE INCOME FIXED MONEY
GROWTH EQUITY INCOME MARKET
FUND(1) FUND(1) FUND(1) FUND(2)
---------- ------- ------------ -------
<S> <C> <C> <C> <C>
INVESTMENT:
Dividends $ 195 $ 36,466 $ -- $ --
Interest 3,491 3,798 66,452 32,557
Less: Foreign taxes withheld -- -- -- --
-------- -------- -------- --------
Total investment income 3,686 40,264 66,452 32,557
-------- -------- -------- --------
EXPENSES:
Management fees 2,821 5,235 3,894 2,332
Less management fees waived (2,821) (5,235) (3,894) (2,332)
Expense reimbursement from management (14,098) (23,833) (22,979) (12,213)
Investment advisory fees 4,074 4,071 2,818 416
Custody fees 1,250 2,320 2,015 1,049
Professional fees 8,855 16,700 14,385 6,939
Printing fees 1,930 3,580 3,047 1,546
Wire agent fees 42 75 63 32
Registration fees 261 512 485 245
Trustees fees 3,408 6,339 5,517 2,970
Pricing fees 14 23 23 6
Miscellaneous fees 18 38 31 18
Amortization of deferred organizational costs 1,768 1,768 1,768 1,768
-------- -------- -------- --------
Total expenses 7,522 11,593 7,173 2,776
-------- -------- -------- --------
NET INVESTMENT INCOME (LOSS) (3,836) 28,671 59,279 29,781
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from security transactions 85,245 55,504 11,725 (2)
Net realized loss on foreign currency contracts and
foreign currency transactions -- -- -- --
Net change in unrealized appreciation of investments 169,918 265,800 93,848 --
Net change in unrealized depreciation of foreign currency
and translation of other assets and liabilities in
foreign currencies -- -- -- --
-------- -------- -------- --------
Total net realized and unrealized gain (loss) on investments 255,163 321,304 105,573 (2)
-------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $251,327 $349,975 $164,852 $ 29,779
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 62
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
Insurance Investment Products Trust -- for the period ended December 31, 1995
<TABLE>
<CAPTION>
------------- -------
INTERNATIONAL
GROWTH GROWTH
FUND FUND
------------- -------
1995(1) 1995(1)
------------- -------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 19,235 $ 7,508
Net realized gain (loss) from security and foreign
currency transactions 29,086 60,687
Net change in unrealized appreciation of investments
and foreign currency transactions 98,799 285,540
---------- ----------
Net increase in net assets resulting from operations 147,120 353,735
---------- ----------
DIVIDENDS DISTRIBUTED FROM:
Net investment income (8,338) (7,512)
Net realized gains (37,937) (46,457)
---------- ----------
Total dividends distributed (46,275) (53,969)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 1,166,585 1,256,440
Reinvestment of cash distributions 46,275 53,968
Cost of shares repurchased (54,182) (73,163)
---------- ----------
Increase in net assets derived from
capital share transactions 1,158,678 1,237,245
---------- ----------
Net increase in net assets 1,259,523 1,537,011
NET ASSETS:
Beginning of period 0 0
---------- ----------
End of period (3) $1,259,523 $1,537,011
========== ==========
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at
beginning of period 0 0
---------- ----------
Shares issued 116,356 122,847
Shares issued in lieu of cash
distributions 4,268 4,389
Shares repurchased (5,011) (5,936)
---------- ----------
Net increase in capital shares 115,613 121,300
---------- ----------
Capital shares outstanding at
end of period 115,613 121,300
========== ==========
</TABLE>
(1) Commenced operations on February 10, 1995.
(2) Commenced operations on February 13, 1995.
(3) Including undistributed (distributions in excess of) net investment income
of $395 for International Growth, $(4) for Growth, $13,038 for Aggressive
Growth, $3 for Income Equity, $1 for Intermediate Fixed Income and $0 for
Money Market at December 31, 1995.
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 63
================================================================================
<TABLE>
<CAPTION>
---------- ------- ------------ -------
AGGRESSIVE INCOME INTERMEDIATE MONEY
GROWTH EQUITY FIXED INCOME MARKET
FUND FUND FUND FUND
---------- ------- ------------ -------
1995(1) 1995(1) 1995(1) 1995(2)
---------- ------- ------------ -------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (3,836) $ 28,671 $ 59,279 $ 29,781
Net realized gain (loss) from security and foreign
currency transactions 85,245 55,504 11,725 (2)
Net change in unrealized appreciation of investments
and foreign currency transactions 169,918 265,800 93,848 --
-------- ---------- ---------- ----------
Net increase in net assets resulting from operations 251,327 349,975 164,852 29,779
-------- ---------- ---------- ----------
DIVIDENDS DISTRIBUTED FROM:
Net investment income (537) (28,668) (59,278) (29,781)
Net realized gains (67,834) (48,226) (8,501) --
-------- ---------- ---------- ----------
Total dividends distributed (68,371) (76,894) (67,779) (29,781)
-------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 756,416 1,382,248 1,232,195 1,065,614
Reinvestment of cash distributions 67,897 76,895 67,780 1,414
Cost of shares repurchased (183,555) (196,333) (94,732) (467,528)
-------- ---------- ---------- ----------
Increase in net assets derived from
capital share transactions 640,758 1,262,810 1,205,243 599,500
-------- ---------- ---------- ----------
Net increase in net assets 823,714 1,535,891 1,302,316 599,498
NET ASSETS:
Beginning of period 0 0 0 0
-------- ---------- ---------- ----------
End of period (3) $823,714 $1,535,891 $1,302,316 $ 599,498
======== ========== ========== ==========
CAPITAL SHARE TRANSACTIONS:
Capital shares outstanding at
beginning of period 0 0 0 0
-------- ---------- ---------- ----------
Shares issued 72,042 134,238 121,668 1,065,614
Shares issued in lieu of cash
distributions 5,420 6,485 6,383 1,414
Shares repurchased (14,337) (16,237) (8,784) (467,528)
-------- ---------- ---------- ----------
Net increase in capital shares 63,125 124,486 119,267 599,500
-------- ---------- ---------- ----------
Capital shares outstanding at
end of period 63,125 124,486 119,267 599,500
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 64
FINANCIAL HIGHLIGHTS
================================================================================
Insurance Investment Products Trust -- for the period ended December 31, 1995
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Distributions Distributions
Net Asset Net Realized and From From
Value Net Unrealized Net Realized Net Asset
Beginning Investment Gain on Investment Capital Value End
of Period Income (Loss) Securities Income Gains of Period
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------
INTERNATIONAL GROWTH FUND (1)
- -----------------------------
1995 $10.00 $0.17 $1.13 $(0.07) $(0.34) $10.89
- ---------------
GROWTH FUND (1)
- ---------------
1995 $10.00 $0.07 $3.07 $(0.07) $(0.40) $12.67
- --------------------------
AGGRESSIVE GROWTH FUND (1)
- --------------------------
1995 $10.00 $(0.06) $4.30 $(0.01) $(1.18) $13.05
- ----------------------
INCOME EQUITY FUND (1)
- ----------------------
1995 $10.00 $0.25 $2.74 $(0.25) $(0.40) $12.34
- ----------------------------------
INTERMEDIATE FIXED INCOME FUND (1)
- ----------------------------------
1995 $10.00 $0.54 $0.99 $(0.54) $(0.07) $10.92
- ---------------------
MONEY MARKET FUND (2)
- ---------------------
1995 $1.00 $0.05 -- $(0.05) -- $1.00
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Ratio of Net Investment
Expenses Income (Loss)
Ratio of to Average to AVERAGE
Net Investment Net Assets Net Assets
Ratio of Income (Excluding (Excluding
Net Assets Expenses (Loss) to Waivers Waivers Portfolio
Total End of to Average Average and Reim- and Reim- Turnover
Return+ Period Net Assets Net Assets bursements) bursements) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------
INTERNATIONAL GROWTH FUND (1)
- -----------------------------
1995 13.18% $1,259,523 1.40% 1.88% 6.39% (3.11)% 45%
- ---------------
GROWTH FUND (1)
- ---------------
1995 31.50% $1,537,011 1.00% 0.65% 3.56% (1.91)% 52%
- --------------------------
AGGRESSIVE GROWTH FUND (1)
- --------------------------
1995 42.87% $823,714 1.20% (0.61)% 3.90% (3.31)% 128%
- ----------------------
INCOME EQUITY FUND (1)
- ----------------------
1995 30.30% $1,535,891 1.00% 2.46% 3.50% (0.04)% 47%
- ----------------------------------
INTERMEDIATE FIXED INCOME FUND (1)
- ----------------------------------
1995 15.67% $1,302,316 0.70% 5.79% 3.32% 3.17% 42%
- ---------------------
MONEY MARKET FUND (2)
- ---------------------
1995 4.83% $599,498 0.50% 5.36% 3.12% 2.74% --
</TABLE>
(1) Commenced operations on February 10, 1995. All ratios for the period have
been annualized.
(2) Commenced operations on February 13, 1995. All ratios for the period have
been annualized.
+ Total Return is for the period indicated and has not been annualized.
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS
================================================================================
Insurance Investment Products Trust -- December 31, 1995
1. ORGANIZATION:
Insurance Investment Products Trust, (the "Trust") was organized as a
Massachusetts business trust under a Declaration of Trust dated June 3, 1994.
The Trust is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company with six funds: International
Growth Fund, Growth Fund, Aggressive Growth Fund, Income Equity Fund and
Intermediate Fixed Income Fund (the "Non-Money Market Funds"), and the Money
Market Fund. The Funds' prospectus provides a description of each Funds
investment objectives, policies and strategies. The assets of each Fund are
segregated, and a shareholder's interest is limited to the Fund in which shares
are held. Shares of the Trust are currently offered only to National Home Life
Assurance Company Separate Account V and C.M. Life Insurance Company, through
the C.M. Multi-Account A.
The Trust operates in an industry where the financial performance, and
possibly the long-term viability, of a fund is dependent on, among other
things, asset levels to create economies of scale. The growth expectations for
Trust asset levels to date have not met management's expectations and
management is considering various options to recommend to the Trust's Board of
Trustees, including the liquidation of the Trust. The net assets value as of
December 31, 1995, approximates the value per share that would be derived
through a liquidation of the Trust at that date.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Trust.
Security Valuation -- Investment securities of the "Non-Money Market
Funds" which are listed on a securities exchange for which market quotations
are available are valued by an independent pricing service at the last quoted
sales price for such securities on each business day. If there is no such
reported sale, these securities and unlisted securities for which market
quotations are not readily available are valued at the most recently quoted bid
price. Debt obligations with sixty days or less remaining until maturity may be
valued at their amortized cost. Foreign securities in the International Growth
Fund are valued based upon quotations from the primary market in which they are
traded.
Investment securities of the Money Market Fund are stated at amortized
cost which approximates market value. Under this valuation method, purchase
discounts and premiums are accreted and amortized ratably to maturity and are
included in interest income.
Security Transactions and Investment Income -- Security transactions
are accounted for on the trade date of the security purchase or sale. Cost used
in determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and
amortization of purchase discounts and premiums during the respective holding
period which is calculated using the effective interest method. Interest income
is recorded on the accrual basis. Dividend income is recorded on ex-dividend
date.
Repurchase Agreements -- Securities pledged as collateral for
repurchase agreements are held by each Fund's custodian bank until maturity of
the repurchase agreements. Provisions of the agreements ensure that the market
value of the collateral, including interest thereon, is sufficient in the event
of default by the counterparty. If the counterparty defaults and the value of
the collateral declines or if the counterparty enters an insolvency proceeding,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation -- The books and records of the
International Growth Fund are maintained in U.S. dollars on the following
basis:
(I) market value of investment securities, assets and liabilities at
the current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses
at the relevant rates of exchange prevailing on the respective
dates of such transactions.
The International Growth Fund does not isolate that portion of gains
and losses on investments in equity securities which is due to changes in the
for-
19
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (Concluded)
================================================================================
Insurance Investment Products Trust -- December 31, 1995
eign exchange rates from that which is due to change in market prices of equity
securities.
The International Growth Fund reports certain foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts -- The International Growth Fund
enters into forward foreign currency contracts as hedges against either
specific transactions or fund positions. The aggregate principal amount of the
contracts are not recorded as the International Growth Fund intends to settle
the contracts prior to delivery. All commitments are "marked-to-market" daily
at the applicable foreign exchange rate and any resulting unrealized gains or
losses are recorded currently. The International Growth Fund realizes gains or
losses at the time the forward contracts are extinguished. Unrealized gains or
losses on outstanding positions in forward foreign currency contracts held at
the close of the year will be recognized as ordinary income or loss for Federal
income tax purposes.
Expenses -- Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses of the Trust are
prorated to the Funds on the basis of relative net assets.
Distributions to Shareholders -- The International Growth Fund
declares and pays dividends from net investment income periodically. The
Growth, Income Equity and Intermediate Fixed Income Funds declare and pay
dividends from net investment income monthly. The Aggressive Growth Fund
declares and pays dividends from net investment income quarterly. The Money
Market Fund's distributions from net investment income are declared on a daily
basis. Any net realized capital gains on sales of securities from the Funds are
distributed to their shareholders at least annually.
Federal Income Taxes -- It is the Trust's intention to qualify as a
regulated investment company for Federal income tax purposes and distribute all
of its taxable income and net capital gains. Accordingly, no provision for
Federal income taxes is required.
The Aggressive Growth Fund has reclassified $17,411 of accumulated net
realized gains to undistributed net investment income. This reclassification,
which has no impact on the net asset value of the Fund, is primarily
attributable to certain differences in the computation of distributable income
and capital gains under Federal Income Tax rules and regulations versus
generally accepted accounting principles, and is designed to present the Fund's
capital accounts on a tax basis.
Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
The Trust incurred organizational costs in connection with its start-up. These
costs have been capitalized by the Trust and are being amortized over sixty
months commencing with operations. In the event any of the initial shares of
the Trust are redeemed by any holder thereof during the period that the Trust
is amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by the Trust will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption. These costs
include legal fees of approximately $1,400 for organizational work performed by
a law firm of which an officer and trustee of the Trust is a partner.
The Trust and SEI Financial Management Corporation ("SFM") are parties
to a Management Agreement dated December 30, 1994, under which SFM provides
management, administrative and shareholder services to the Funds for a fee
calculated as a percentage of each Fund's average daily net assets at an annual
rate of 0.55% for the International Growth Fund, 0.45% for the Growth,
Aggressive Growth and Income Equity Funds, 0.38% for the Intermediate Fixed
Income Fund and 0.42% for the Money Market Fund.
20
<PAGE> 67
================================================================================
SFM also serves as Adviser to the Non-Money Market Funds pursuant to
an Investment Advisory Agreement dated December 30, 1994, under which SFM
receives a fee calculated as a percentage of each Fund's average daily net
assets at an annual rate of 0.475% for the International Growth Fund, 0.40% for
the Growth Fund, 0.65% for the Aggressive Growth Fund, 0.35% for the Income
Equity Fund and 0.275% for the Intermediate Fixed Income Fund. SFM may
voluntarily waive a portion of its fee and reimburse the Trust, if necessary,
in order to limit the total operating expenses of each Fund.
Wellington Management Company ("WMC") serves as Adviser to the Money
Market Fund pursuant to an agreement dated March 7, 1995, under which WMC
receives a fee calculated as a percentage of the Money Market Fund's average
daily net assets at an annual rate of 0.075% up to $500 million and 0.020% over
$500 million. WMC may voluntarily waive a portion of its fee, if necessary, in
order to limit the total operating expenses of the Money Market Fund.
LSV Asset Management ("LSV"), Sub-Adviser to a portion of the assets
of the Income Equity Fund is organized as a Delaware general partnership in
which an affiliate of SFM owns a majority interest.
State Street Bank & Trust Company acts as custodian of the
International Growth Fund under an agreement dated December 30, 1994.
CoreStates Bank, N.A. acts as the custodian of the Growth Fund, Aggressive
Growth Fund, Income Equity Fund, Intermediate Fixed Income Fund and Money
Market Fund under an agreement dated December 30, 1994. The custodians play no
role in determining the investment policies of the Funds or which securities
are to be purchased or sold in the Funds.
Certain officers of the Trust are also officers of the Manager,
Adviser and/or Distributor. Such officers are paid no fees by the Trust for
serving as officers of the Trust.
4. SUB-ADVISORY AGREEMENTS:
Sub-Advisory services are provided to the Adviser for the International Growth
Fund by Acadian Asset Management, Inc. and WorldInvest Limited, for the Growth
Fund by Alliance Capital Management L.P. and IDS Advisory Group Inc., for the
Aggressive Growth Fund by Pilgrim Baxter & Associates, LTD., for the Income
Equity Fund by LSV, Mellon Equity Associates and Merus Capital Management, and
for the Intermediate Fixed Income Fund by Western Asset Management Company.
Under the terms of such agreements, the Sub-Advisers are entitled to receive a
fee from the Adviser. Such a fee is computed daily and paid monthly. The
Adviser is responsible for the supervision of, and payment of fees to, the
Sub-Advisers in connection with their services.
5. INVESTMENT TRANSACTIONS:
During the period ended December 31, 1995, purchases of securities and proceeds
from sales of securities, other than temporary investments in short-term
securities, were as follows:
<TABLE>
<CAPTION>
Intermediate
International Aggressive Income Fixed
Growth Growth Growth Equity Income
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Purchases
U.S.
Government $ -- $ -- $ -- $ -- $1,056,841
Other 1,606,423 1,804,256 1,402,412 1,797,295 19,938
Sales
U.S.
Government $ -- $ -- $ -- $ -- $ 316,421
Other 514,901 668,284 854,526 605,927 20,196
</TABLE>
At December 31, 1995, the total cost of securities and net realized
gains or losses on securities sold for Federal income tax purposes was not
materially different from amounts reported for financial reporting purposes.
The aggregate gross unrealized appreciation and depreciation for securities
held by the "Non-Money Market Funds" at December 31, 1995 is as follows :
<TABLE>
<CAPTION>
Intermediate
International Aggressive Income Fixed
Growth Growth Growth Equity Income
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Aggregate gross
unrealized
appreciation $138,560 $313,743 $203,742 $275,502 $93,853
Aggregate gross
unrealized
depreciation (39,631) (28,203) (33,824) (9,702) (5)
-------- -------- -------- -------- -------
Net unrealized
appreciation $ 98,929 $285,540 $169,918 $265,800 $93,848
======== ======== ======== ======== =======
</TABLE>
21
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
OF INSURANCE INVESTMENT PRODUCTS TRUST:
We have audited the accompanying statements of net assets of International
Growth, Growth, Aggressive Growth, Income Equity, Intermediate Fixed Income and
Money Market Funds of Insurance Investment Products Trust (the "Trust") as of
December 31, 1995, and the related statements of operations, changes in net
assets and financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
International Growth, Growth, Aggressive Growth, Income Equity, Intermediate
Fixed Income and Money Market Funds of Insurance Investment Products Trust as
of December 31, 1995, the results of their operations, changes in their net
assets, and financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 9, 1996
22
<PAGE> 69
INSURANCE INVESTMENT PRODUCTS TRUST
PART C
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
The following audited financial statements, for the fiscal year ending
December 31, 1995, are included in Part A of this Registration Statement:
Financial Highlights
The following audited financial statements, for the fiscal year ending
December 31, 1995, are included in Part B of this Registration Statement:
Statement of Net Assets
Statement of Operations
Statement of Changes in Financial Position
Notes to Financial Statements
(b) Exhibits
1 Declaration of Trust.(1/)
2 By-Laws.(1/)
3 Not Applicable.
4 Not Applicable.
5(a) Management Agreement between the Trust and SEI Financial
Management Corporation.(2/)
5(b) Form of Advisory Agreement between the Trust and SEI Financial
Management Corporation (the "Adviser").(2/)
5(c) Form of Sub-Advisory Agreement for the International Growth Fund
between the Adviser and Acadian Asset Management, Inc.(2/)
5(d) Form of Sub-Advisory Agreement for the International Growth Fund
between the Adviser and WorldInvest Limited.(2/)
5(e) Form of Sub-Advisory Agreement for the Growth Fund between the
Adviser and IDS Advisory Group, Inc.(2/)
- -----------------------------
(1/) Incorporated herein by Reference to exhibits filed with Registrant's
initial Registration Statement on Form N-1A (File No. 33-80158),
filed on June 10, 1994.
(2/) Incorporated herein by Reference to exhibits filed with the
Pre-Effective Amendment to this Registration Statement on Form N-1A
(File No. 33-80158), filed on November 15, 1994.
<PAGE> 70
5(f) Form of Sub-Advisory Agreement for the Growth Fund between the
Adviser and Alliance Capital Management L.P.(2/)
5(g) Form of Sub-Advisory Agreement for the Aggressive Growth Fund
between the Adviser and Pilgrim Baxter & Associates, Ltd.(2/)
5(h) Form of Sub-Advisory Agreement for the Income Equity Fund between
the Adviser and Merus Capital Management.(2/)
5(i) Form of Sub-Advisory Agreement for the Income Equity Fund between
the Adviser and Mellon Equity Associates.(2/)
5(j) Form of Sub-Advisory Agreement for the Income Equity Fund between
the Adviser and LSV Asset Management.(2/)
5(k) Form of Sub-Advisory Agreement for the Intermediate Fixed Income
Fund between the Adviser and Western Asset Management
Company.(2/)
5(l) Form of Sub-Advisory Agreement for the Money Market Fund between
the Adviser and Wellington Management Company.(2/)
5(m) Form of Advisory Agreement for the Money Market Fund between the
Trust and Wellington Management Company.(3/)
6 Distribution Agreement between the Trust and SEI Financial
Services Company.(2/)
7 Not Applicable.
8(a) Custody Agreement between the Trust and CoreStates Bank, N.A.(2/)
8(b) International Custodian Agreement between the Trust and State
Street Bank and Trust Company.(2/)
9 Form of Participation Agreement between the Trust and
Participating Insurance Company.(2/)
10 Not Applicable.
11 Consent of Independent Auditors.
12 Not Applicable.
13 Not Applicable.
14 Not Applicable.
- -----------------------------
(2/) Incorporated herein by Reference to exhibits filed with the
Pre-Effective Amendment to this Registration Statement on Form N-1A
(File No. 33-80158), filed on November 15, 1994.
(3/) Incorporated herein by Reference to exhibits filed with the
Post-Effective Amendment No. 2 to this Registration Statement on Form
N-1A (File No. 33-80158), filed on April 28, 1995.
C-2
<PAGE> 71
15 Not Applicable.
16 Schedules of Calculation of Performance Data.(2/)
17 Not Applicable.
18 Powers of Attorney.(2/)
27 Financial Data Schedules.
- -----------------------------
(2/) Incorporated herein by reference to exhibits filed with the
Pre-Effective Amendment to this Registration Statement on Form N-1A
(File No. 33-80158), filed on November 15, 1994.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
Registrant is controlled by its Trustees.
Item 26. Number of Holders of Securities
-------------------------------
The following information is as of April 17, 1996.
<TABLE>
<CAPTION>
Number of
Title of Series Record Holders
--------------- --------------
<S> <C>
International Growth Fund [2]
Growth Fund [2]
Aggressive Growth Fund [2]
Income Equity Fund [2]
Intermediate Fixed Income Fund [2]
Money Market Fund [1]
</TABLE>
Item 27. Indemnification
---------------
Article X, Sections 2 and 3 of the Registrant's Agreement and
Declaration of Trust and Article VII of the Registrant's By-laws, provide for
the indemnification of the Registrant's directors and officers in accordance
with, and to the extent permitted by, Massachusetts law. Registrant has
obtained from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions. In no event will
Registrant indemnify any of its directors, officers, employees, or agents
against any liability to which such person would otherwise be subject by reason
of his willful misfeasance, bad faith, gross negligence in the performance of
his duties, or by reason of his reckless disregard of the duties involved in
the conduct of his office or arising under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933, as
amended, and Release No. 11330 under the Investment Company Act of 1940, as
amended, in connection with any indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in connection with the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
-----------------------------------------------------
(a) SEI Financial Management Corporation
------------------------------------
SEI Financial Management Corporation ("SFM") is the Registrant's
adviser. SFM acts as investment adviser to numerous investment counseling
accounts in addition to other registered investment companies, including the
Registrant. The principal business address of SFM is 680 East Swedesford Road,
Wayne, PA 19087-1658. SFM is an investment adviser registered under the
Investment Advisers Act of 1940, as amended (the "Advisers Act").
C-3
<PAGE> 72
The list required by this Item 28 of officers and directors of SFM,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by SFM pursuant to the Advisers Act (SEC File No. 801-24593).
(b) Acadian Asset Management, Inc.
------------------------------
Acadian Asset Management, Inc. ("Acadian") is a sub-investment adviser
for Registrant's International Growth Fund. Acadian acts as investment adviser
to numerous investment counseling accounts in addition to other registered
investment companies, including the Registrant. The principal business address
of Acadian is Two International Place, Boston, Massachusetts 02110. Acadian
is an investment adviser registered under the Advisers Act.
The list required by this Item 28 of officers and directors of
Acadian, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV filed by Acadian pursuant to the Advisers Act (SEC File No.
801-28078).
(c) IDS Advisory Group, Inc.
------------------------
IDS Advisory Group, Inc. ("IDS") is a sub-investment adviser for
Registrant's Growth Fund. IDS acts as investment adviser to numerous
investment counseling accounts in addition to other registered investment
companies, including the Registrant. The principal business address of IDS is
IDS Tower 10, Minneapolis, MN 55440. IDS is an investment adviser registered
under the Advisers Act.
The list required by this Item 28 of officers and directors of IDS,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by IDS pursuant to the Advisers Act (SEC File No. 801-25943).
(d) Alliance Capital Management L.P.
--------------------------------
Alliance Capital Management L.P. ("Alliance") is a sub-investment
adviser for Registrant's Growth Fund. Alliance acts as investment adviser to
numerous investment counseling accounts in addition to other registered
investment companies, including the Registrant. The principal business address
of Alliance is 1345 Avenue of the Americas, New York, NY 10105. Alliance is an
investment adviser registered under the Advisers Act.
The list required by this Item 28 of officers and directors of
Alliance, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV filed by Alliance pursuant to the Advisers Act (SEC File
No. 801-32361).
(e) Pilgrim Baxter & Associates, Ltd.
---------------------------------
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") is a
sub-investment adviser for Registrant's Aggressive Growth Fund. Pilgrim Baxter
acts as investment adviser to numerous investment advisory accounts in addition
to other registered investment companies, including the Registrant. The
principal business address of Pilgrim Baxter is 1255 Drummers Lane, Suite 300,
Wayne, PA 19087. Pilgrim Baxter is an investment adviser registered under the
Advisers Act.
The list required by this Item 28 of officers and directors of
Pilgrim, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV filed by Pilgrim pursuant to the Advisers Act (SEC File No.
801-19165).
(f) Mellon Equity Associates
------------------------
Mellon Equity Associates ("MEA") is a sub-investment adviser for
Registrant's Income Equity Fund. MEA acts as investment adviser to numerous
investment counseling accounts in addition to other registered investment
companies, including the Registrant. The principal business address of MEA
is 500 Grant Street, Suite 3700, Pittsburgh, PA 15258. MEA is an investment
adviser registered under the Advisers Act.
The list required by this Item 28 of officers and directors of MEA,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by MEA pursuant to the Advisers Act (SEC File No. 801-28692).
C-4
<PAGE> 73
(g) LSV Asset Management
--------------------
LSV Asset Management ("LSV") is a sub-investment adviser for
Registrant's Income Equity Fund. LSV acts as investment adviser to numerous
investment counseling accounts but not to any other registered investment
companies other than the Registrant. The principal business address of LSV is
181 W. Madison Avenue, Chicago, IL 60602.
The list required by this Item 28 of officers and directors of LSV
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by LSV pursuant to the Advisers Act (SEC File No. 801-47689).
(h) Western Asset Management Company
--------------------------------
Western Asset Management Company ("Western") is a sub-investment
adviser for Registrant's Intermediate Fixed Income Fund. Western acts as
investment adviser to numerous investment counseling accounts in addition to
other registered investment companies, including the Registrant. The principal
business address of Western is 117 East Colorado Boulevard, Pasadena, CA 91105.
Western is an investment adviser registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Western
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Western pursuant to the Advisers Act (SEC File No.
801-08162).
(i) Wellington Management Company
-----------------------------
Wellington Management Company ("WMC") is the investment adviser for
Registrant's Money Market Fund. WMC acts as investment adviser to numerous
investment counseling accounts in addition to other registered investment
companies, including the Registrant. The principal business address of WMC is
75 State Street, Boston, Massachusetts 02109. WMC is an investment adviser
registered under the Advisers Act.
The list required by this Item 28 of officers and directors of WMC
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by WMC pursuant to the Advisers Act (SEC File No. 801-15908).
Item 29. Principal Underwriter
---------------------
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing the securities of the Registrant also acts as a principal
underwriter, distributor or investment adviser.
Registrant's distributor, SEI Financial Services Company ("SFS"), acts
as distributor for:
<TABLE>
<CAPTION>
=======================================================================================================
Name of Fund Date
=======================================================================================================
<S> <C>
- -------------------------------------------------------------------------------------------------------
SEI Daily Income Trust July 15, 1982
- -------------------------------------------------------------------------------------------------------
SEI Liquid Asset Trust November 29, 1982
- -------------------------------------------------------------------------------------------------------
SEI Tax Exempt Trust December 3, 1982
- -------------------------------------------------------------------------------------------------------
SEI Index Funds July 10, 1985
- -------------------------------------------------------------------------------------------------------
SEI Institutional Managed Trust January 22, 1987
- -------------------------------------------------------------------------------------------------------
SEI International Trust August 30, 1988
- -------------------------------------------------------------------------------------------------------
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
- -------------------------------------------------------------------------------------------------------
The Pillar Funds February 28, 1992
- -------------------------------------------------------------------------------------------------------
CUFUND May 1, 1992
=======================================================================================================
</TABLE>
C-5
<PAGE> 74
<TABLE>
<CAPTION>
=======================================================================================================
Name of Fund Date
=======================================================================================================
<S> <C>
STI Classic Funds May 29, 1992
- -------------------------------------------------------------------------------------------------------
CoreFunds, Inc. October 30, 1992
- -------------------------------------------------------------------------------------------------------
First American Funds, Inc. November 1, 1992
- -------------------------------------------------------------------------------------------------------
First American Investment Funds, Inc. November 1, 1992
- -------------------------------------------------------------------------------------------------------
The Arbor Fund January 28, 1993
- -------------------------------------------------------------------------------------------------------
1784 Funds June 1, 1993
- -------------------------------------------------------------------------------------------------------
The PBHG Funds, Inc. July 16, 1993
- -------------------------------------------------------------------------------------------------------
Marquis Funds(R) August 17, 1993
- -------------------------------------------------------------------------------------------------------
Morgan Grenfell Investment Trust January 3, 1994
- -------------------------------------------------------------------------------------------------------
Inventor Funds, Inc. August 1, 1994
- -------------------------------------------------------------------------------------------------------
The Achievement Funds Trust December 27, 1994
- -------------------------------------------------------------------------------------------------------
Insurance Investment Products Trust December 30, 1994
- -------------------------------------------------------------------------------------------------------
Bishop Street Funds January 27, 1995
- -------------------------------------------------------------------------------------------------------
CrestFunds, Inc. March 1, 1995
- -------------------------------------------------------------------------------------------------------
Conestoga Family of Funds May 1, 1995
- -------------------------------------------------------------------------------------------------------
STI Classic Variable Trust August 18, 1995
- -------------------------------------------------------------------------------------------------------
ARK Funds November 1, 1995
- -------------------------------------------------------------------------------------------------------
Monitor Funds January 11, 1996
- -------------------------------------------------------------------------------------------------------
SEI Asset Allocation Trust April 1, 1996
=======================================================================================================
</TABLE>
SFS provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement, and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
(b) NAME POSITION AND OFFICES WITH UNDERWRITER WITH REGISTRANT
---- ------------------------------------- ---------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Henry H. Greer Director, President & Chief Operating Officer --
Carmen V. Romeo Director, Executive Vice President & Treasurer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Charles A. Marsh Executive Vice President - Capital Resources Division --
Kevin P. Robins Senior Vice President, General Counsel & Secretary Vice President &
Assistant Secretary
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
David G. Lee Senior Vice President President & Chief
Executive Officer
William Madden Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
James V. Morris Senior Vice President --
</TABLE>
C-6
<PAGE> 75
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME POSITION AND OFFICES WITH UNDERWRITER WITH REGISTRANT
---- ------------------------------------- ----------------------
<S> <C> <C>
Steven Onofrio Senior Vice President --
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Robert Crudup Managing Director --
Vic Galef Managing Director --
Kim Kirk Managing Director --
John Krzeminski Managing Director --
Carolyn McLauren Managing Director --
Barbara Moore Managing Director --
Donald Pepin Managing Director --
Mark Samuels Managing Director --
Wayne M. Withrow Managing Director --
Mick Duncan Team Leader --
Vicki Malloy Team Leader --
Sandra K. Orlow Vice President & Assistant Secretary Vice President &
Assistant Secretary
Kathryn L. Stanton Vice President & Assistant Secretary Vice President &
Assistant Secretary
Cris Brookmyer Vice President & Controller --
Robert Aller Vice President --
Charles Baker Vice President --
Steve Bendinelli Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President Vice President &
Assistant Secretary
Ed Daly Vice President --
Ward Curtis Vice President --
Lucinda Duncalfe Vice President --
Jeff Drennen Vice President --
Michael Kantor Vice President --
Kathy Heilig Vice President --
Lawrence Hutchison Vice President --
Donald H. Korytowski Vice President --
Samuel King Vice President --
Robert S. Ludwig Vice President --
Jack May Vice President --
W. Kelso Morrill Vice President --
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
William Zawaski Vice President --
James Dougherty Director, Brokerage Services --
</TABLE>
Item 30. Location of Accounts and Records
--------------------------------
(1) SEI Financial Management Corporation, 680 Swedesford Road, Wayne,
PA 19087-1658 (records relating to its functions as Manager and Shareholder
Serving Agent).
(2) Acadian Asset Management, Inc., Two International Place,
Boston, MA 02110 (records relating to its function as sub-adviser to the
International Growth Fund).
(3) IDS Advisory Group, Inc., IDS Tower 10, Minneapolis, MN 55440
(records relating to its function as sub-adviser to the Growth Fund).
(4) Alliance Capital Management L.P., 1345 Avenue of the Americas,
New York, NY 10105 (records relating to its functions as sub-adviser to the
Growth Fund).
C-7
<PAGE> 76
(5) Pilgrim Baxter & Associates, Ltd., 1255 Drummers Lane, Suite 300,
Wayne PA 19087(records relating to its function as sub-adviser to the
Aggressive Growth Fund).
(6) Mellon Equity Associates, 500 Grant Street, Suite 3700,
Pittsburgh, PA 15258 (records relating to its function as sub-adviser to the
Income Equity Fund).
(7) LSV Asset Management, 181 W. Madison Avenue, Chicago, IL 60602
(records relating to its function as sub-adviser to the Income Equity Fund).
(8) Western Asset Management Company, 117 East Colorado Boulevard,
Pasadena California 91105 (records relating to its function as sub-adviser to
the Intermediate Fixed Income Fund).
(9) Wellington Management Company, 75 State Street, Boston,
Massachusetts 02109 (records relating to its function as sub-adviser to the
Money Market Fund).
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
The Registrant undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
The Registrant undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for a purpose requiring action by the shareholders and to assist
in communications with other shareholders as required by Section 16(c).
C-8
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 2 to its Registration
Statement No. 33-80158 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Wayne, in the Commonwealth of Pennsylvania on
the ___th day of April, 1996.
INSURANCE INVESTMENT PRODUCTS TRUST
By: /s/ David G. Lee
-------------------------------------
David G. Lee
President
Attest:
/s/ Jeffrey A. Cohen
- --------------------------------
Jeffrey A. Cohen
Controller
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below by
the following persons in the capacity and on the dates indicated.
<TABLE>
<S> <C> <C>
* Trustee April __, 1996
-----------------------------------------------
Richard F. Blanchard
* Trustee April __, 1996
-----------------------------------------------
William M. Doran
* Trustee April __, 1996
-----------------------------------------------
F. Wendell Gooch
* Trustee April __, 1996
-----------------------------------------------
Frank E. Morris
* Trustee April __, 1996
-----------------------------------------------
James M. Storey
* Trustee April __, 1996
-----------------------------------------------
Robert A. Nesher
/s/ Jeffrey A. Cohen Controller and April __, 1996
----------------------------------------------- Assistant Secretary
Jeffrey A. Cohen
*By: /s/ David G. Lee
------------------------------------------
David G. Lee
Attorney-in-Fact
</TABLE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
11 Consent of Independent Auditors
27 Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated February 9, 1996 included in the
Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A of
the SEI Insurance Investments Products Trust (No. 33-80158), and to all
references to our Firm included in this Registration Statement File No.
33-80158.
Philadelphia, Pa.,
April 30, 1996
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<DIVIDEND-INCOME> 31
<INTEREST-INCOME> 3
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<EXPENSES-NET> 14
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<REALIZED-GAINS-CURRENT> 29
<APPREC-INCREASE-CURRENT> 99
<NET-CHANGE-FROM-OPS> 147
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<TABLE> <S> <C>
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<PAID-IN-CAPITAL-COMMON> 1237
<SHARES-COMMON-STOCK> 121
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 286
<NET-ASSETS> 1537
<DIVIDEND-INCOME> 17
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> (12)
<NET-INVESTMENT-INCOME> 7
<REALIZED-GAINS-CURRENT> 61
<APPREC-INCREASE-CURRENT> 286
<NET-CHANGE-FROM-OPS> 354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7)
<DISTRIBUTIONS-OF-GAINS> (47)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1256
<NUMBER-OF-SHARES-REDEEMED> (73)
<SHARES-REINVESTED> 54
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<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 41
<AVERAGE-NET-ASSETS> 1288
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
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<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000925560
<NAME> INSURANCE INVESTMENT PRODUCT TRUST
<SERIES>
<NUMBER> 031
<NAME> AGGRESSIVE GROWTH PORTFOLIO
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-10-1995
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<NET-INVESTMENT-INCOME> (3)
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<PER-SHARE-NII> (.06)
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<NAME> INSURANCE INVESTMENT PRODUCT TRUST
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<NUMBER> 041
<NAME> INCOME EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
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<CIK> 0000925560
<NAME> INSURANCE INVESTMENT PRODUCT TRUST
<SERIES>
<NUMBER> 051
<NAME> INTERMEDIATE FIXED INCOME PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
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<SERIES>
<NUMBER> 061
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-10-1995
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 599
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33
<OTHER-INCOME> 0
<EXPENSES-NET> (3)
<NET-INVESTMENT-INCOME> 30
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> (468)
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<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 18
<AVERAGE-NET-ASSETS> 629
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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