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As filed with the Securities and Exchange Commission on July 15, 1998
Form N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.[_]
Post-Effective Amendment No.[_]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO.[_]
(Check appropriate box or boxes)
SUN CAPITAL ADVISERS TRUST
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(Exact name of registrant as specified in charter)
One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481
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(Address of principal executive office) (Zip Code)
Registrant's Telephone Number, including Area Code: (781) 237-6030
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James M.A. Anderson
Sun Capital Advisers Trust
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
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(Name and address of agent for service)
Copies of communications to:
Peter F. Demuth, Esq. Christopher P. Harvey, Esq.
Sun Life Assurance Company of Canada Hale and Dorr LLP
One Sun Life Executive Park 60 State Street
Wellesley Hills, MA 02481 Boston, MA 02109
Approximate Date of Proposed Public Offering: As soon as possible after this
Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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Sun Capital Advisers Trust
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Real Estate Fund
Sun Capital Advisers, Inc., a member of the Sun Life Assurance Company
of Canada group of companies, serves as investment adviser
to the Sun Capital funds.
Prospectus
December 1, 1998
The Securities and Exchange Commission has not approved any fund's shares as an
investment or determined whether this prospectus is accurate or complete.
Anyone who tells you otherwise is committing a crime.
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TABLE OF CONTENTS
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Risk Return Summary.......................................................... 1
Money Market Fund....................................................... 1
Investment Grade Bond Fund.............................................. 2
Real Estate Fund........................................................ 3
More About the Funds' Investments............................................ 4
Investment Grade Bond Fund.............................................. 4
Real Estate Fund........................................................ 4
The Investment Adviser....................................................... 6
About the Adviser....................................................... 6
Portfolio Managers...................................................... 6
Purchase and Redemption Information.......................................... 7
Buying Shares........................................................... 7
Valuation of Shares..................................................... 7
Redeeming Shares........................................................ 7
Automatic Transactions.................................................. 7
Dividends and Distributions............................................. 8
Taxes................................................................... 8
Fund Details................................................................. 8
Additional Information....................................................... 9
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RISK RETURN SUMMARY
. Money Market Fund
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INVESTMENT GOALS Maximizing current income, consistent with maintaining liquidity and preserving capital. The
fund's board may change these goals without obtaining the approval of the fund's
shareholders.
KEY INVESTMENTS The fund invests exclusively in high quality U.S. dollar-denominated money market securities,
AND STRATEGIES including those issued by:
. U.S. and foreign banks
. corporate issuers
. the U.S. government and its agencies and instrumentalities
. foreign governments
. multinational organizations such as the World Bank
The fund may invest in all types of money market securities, including commercial paper,
certificates of deposit, bankers' acceptances, mortgage-backed and asset-backed securities,
repurchase agreements and other short-term debt securities.
Minimum credit Ratings in a rating agency's two highest short term rating categories or equivalent quality for
quality unrated securities.
Maximum Average dollar weighted portfolio maturity of 90 days or less.
maturity Maturity of 397 days or less for individual securities.
How investments The adviser selects for the fund's portfolio those securities that appear to offer the best relative
are selected value based on an analysis of their credit quality, interest rate sensitivity, yields and prices. To
take advantage of changing yield differentials, the fund may overweight particular sectors of
the short term debt market while maintaining overall issuer and sector diversification.
PRINCIPAL RISKS The fund might not be able to maintain a $1 share price, investors could lose money and the
OF INVESTING IN fund could underperform other money market funds if any of these events occurs:
THE FUND . The issuer or guarantor of a security owned by the fund defaults on its payment
obligations, becomes insolvent or has its credit rating downgraded by a rating agency.
. There is a sudden or sharp increase in interest rates.
. The adviser's judgments about the relative values of securities selected for the fund's
portfolio prove to be wrong.
. The value of the fund's U.S. dollar-denominated foreign securities goes down because
of foreign government actions, political instability or the more limited availability of
accurate information about foreign issuers.
WHO MAY WANT The fund may be appropriate for investors who are looking for:
TO INVEST . liquidity and stability of principal
. a conservative temporary investment
The fund may not be appropriate for investors who:
. need the added security of federal deposit insurance offered by bank deposits
. are investing for long-term growth
. are looking for a rate of return that consistently exceeds the rate of inflation
An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
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RISK RETURN SUMMARY
. Investment Grade Bond Fund
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INVESTMENT GOALS High current income consistent with relative stability of principal. The fund's board may
change these goals without obtaining the approval of the fund's shareholders.
KEY INVESTMENTS The fund invests primarily in investment grade bonds, including those issued by:
AND STRATEGIES . U.S. and foreign companies, including companies in emerging market countries
. the U.S. government and its agencies and instrumentalities, including those that issue
mortgage-backed securities
. foreign governments, including those of emerging market countries
. multinational organizations such as the World Bank
Credit quality At least 80% of assets in investment grade securities. Up to 20% of assets in high yield or junk bonds rated at
least B by one rating agency or unrated bonds of equivalent quality.
Duration target Portfolio duration range generally of 3 1/2 to 6 years. (Duration is a measure of interest rate
sensitivity.) There is no limit on the maturity or duration of individual securities.
How investments The adviser selects investments for the fund's portfolio by:
are selected . Analyzing the credit quality, yield and investment risk of individual securities in order to
estimate their relative value and attractiveness.
. Identifying sectors and maturity ranges that appear to be temporarily underpriced and,
therefore, offer favorable yields given their interest rate sensitivity and other risks.
. Considering whether a particular investment is consistent with the fund's targets for
portfolio duration, maturity distribution and issuer and sector diversification.
PRINCIPAL RISKS Investors could lose money on their investments in the fund or the fund could perform less
OF INVESTING IN well than other possible investments if any of the following occurs:
THE FUND . Interest rates go up, which will make bond prices go down and reduce the value of the
fund's bond portfolio accordingly.
. The issuer of a security owned by the fund defaults on its payment obligations or has its
credit rating downgraded by a rating agency. This risk is higher for high yield bonds.
. The issuer of a security exercises its right, when interest rates are falling, to prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding securities.
This is known as call or prepayment risk.
. The issuer of a security exercises its right when interest rates are rising to extend the time
for paying principal, which will lock in a below-market interest rate, increase the security's
duration and reduce the value of the security. This is known as extension risk.
. Prices of the fund's foreign securities go down because of foreign government actions,
political instability or the more limited availability of accurate information about foreign
issuers. These risks are accentuated for issuers in emerging market countries.
. The adviser's judgments about the relative values of securities selected for the fund's
portfolio prove to be wrong.
. The adviser's hedging strategies are not successful.
WHO MAY WANT The fund may be appropriate for investors who want:
TO INVEST . higher potential returns than a money market fund and are willing to accept more risk of
price volatility
. to diversify their investment portfolios
The fund may not be appropriate for investors who:
. are investing for maximum long-term growth or the highest possible income
. want absolute stability of principal
An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
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RISK RETURN SUMMARY
. Real Estate Fund
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INVESTMENT Primary Long term capital growth Secondary Current income and growth of income. The
GOALS fund's board may change these goals without obtaining the approval of the fund's shareholders.
KEY INVESTMENTS The fund invests at least 80% of its assets in securities of real estate investment trusts (REITs)
AND STRATEGIES and other real estate companies. The fund generally focuses its investments in equity REITs,
which invest most of their assets directly in U.S. or foreign real property, receive most of their
income from rents and may also realize gains by selling appreciated property.
Sun Capital The adviser allocates the fund's investments across various geographic areas, REIT managers
Advisers, Inc. and property types, such as apartments, retail properties, office buildings, hotels, industrial
selects the fund's properties, health care facilities, correctional facilities, manufactured housing, golf courses and
investments storage facilities. The adviser selects securities for the fund's portfolio by analyzing the
fundamental and relative values of potential REIT investments based on several factors,
including:
. The ability of a REIT to grow its funds from operations internally through increased
occupancy and higher rents and externally through acquisitions and development.
. The quality of a REIT's management, including its ability to buy properties at reasonable
prices and to add value by creative and innovative property and business management.
. A REIT's cash flows, price/funds from operations ratio, dividend yield and payment
history, price/net asset value ratio and market price.
. Current or anticipated economic and market conditions, interest rate changes and
regulatory developments.
PRINCIPAL RISKS Investors could lose money on their investments in the fund or the fund could perform less
OF INVESTING IN well than other possible investments if any of the following occurs:
THE FUND . The U.S. or a local real estate market declines due to economic conditions, supply/demand
imbalances (e.g., overbuilding and high vacancy rates) reduced or regulated rents or other
causes.
. Interest rates go up. This can affect the availability or cost of financing for property
acquisitions and reduce the value of a REIT's fixed income investments.
. The values of properties owned by a REIT are hurt by property tax increases, zoning
changes, other governmental actions, environmental liabilities, natural disasters or
increased operating expenses.
. A REIT in the fund's portfolio is, or is perceived by the market to be, poorly managed.
. The market for REITs goes down or is less favored than other stock market sectors or
types of investments.
. The adviser's judgments about the relative values of REIT securities selected for the fund's
portfolio prove to be wrong.
Many REITs are small capitalization companies that may experience more price volatility, be
less liquid and have more limited financial resources than large capitalization companies.
Diversification The fund is not diversified, which means that it can invest a higher percentage of its assets in
and industry any one issuer than a diversified fund. Also, the fund concentrates (invests 25% or more of
concentration assets) in the real estate group of industries. Being non-diversified and concentrated may
magnify the fund's losses from adverse events affecting a particular issuer or the real estate
group of industries.
WHO MAY WANT The fund may be appropriate for investors who:
TO INVEST . are pursuing a long term goal such as investing for retirement
. want to allocate part of their investment portfolio to real estate investments
. are seeking higher long term returns and can accept the risk of volatility in the stock and
real estate markets
The fund may not be appropriate for investors who:
. are pursuing a short term investment goal
. want stability of principal
. are uncomfortable with the risk of price volatility in the stock and real estate markets
An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
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MORE ABOUT THE FUNDS' INVESTMENTS
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. Investment Grade Bond Fund
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Substantially all of the fund's Permitted investments The fund may invest in all types of fixed income securities of any
investments will be either U.S. maturity or duration, such as:
dollar-denominated or hedged
back into U.S. dollars through . bills, notes, bonds
transactions in currency swaps . residential and commercial mortgage-backed securities
or other currency derivative . collateralized mortgage and bond obligations
contracts. . asset-backed securities
. structured notes and other derivative securities
. convertible securities
. preferred stock and trust certificates
These securities may have all types of interest rate payment and reset terms, including fixed
rate, adjustable rate, zero coupon, payment in kind and auction rate features.
Credit quality Securities are investment grade if they are rated in one of the four highest
long-term rating categories of a nationally recognized statistical rating organization, have
received a comparable short-term or other rating or are unrated securities that the adviser
believes are of comparable quality. Securities with lower ratings or of lesser credit quality
are known as high yield bonds or junk bonds. If a security receives different ratings from
multiple rating organizations, the fund may treat the security as being rated in the highest
rating category received. The fund may choose not to sell securities that are downgraded,
after their purchase, below the fund's minimum acceptable credit rating. The fund's credit
standards also apply to counterparties on "over-the-counter" derivative contracts.
. Real Estate Fund
Equity securities include common Permissible investments and additional risks Although the fund typically focuses on equity
stock, trust shares, preferred REITs, it may invest without restriction in mortgage REITs and in equity securities of other
stock and debt securities U.S. and foreign real estate companies. A mortgage REIT invests most of its assets in real
convertible into common stock estate mortgages and earns most of its income from interest payments. A real estate company is
and warrants. a company that earns at least 50% of its gross revenues or net profits from real estate
activities or from products or services related to the real estate sector. Real estate
activities include owning, developing, managing or acting as a broker for real estate. Examples
of related products and services include building supplies and mortgage servicing.
In selecting investments for the fund, the adviser identifies securities with significant
potential for appreciation relative to risk and other securities while also analyzing the level
of dividend payments. The adviser uses the same strategy to select other real estate companies
for the fund as it uses to select REITs. Many of the risks of REIT investing described in the
risk/return summary also apply to other real estate companies.
REITs are subject to the following additional risks:
. A REIT may be unable to obtain financing to fund income and gain distributions required
by federal tax law.
. A REIT may fail to qualify for the federal tax exemption for distributed income.
. Changes in federal tax law may adversely affect REITS, for example, by limiting their
permissible businesses or investments.
. Fund shareholders indirectly bear a proportionate share of the advisory fees and other
operating expenses of REITs in the fund's portfolio in addition to the advisory fees and
other expenses of the fund.
The fund may invest up to 20% of assets in any of the fixed income securities in which
Investment Grade Bond Fund is permitted to invest.
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. INVESTMENT GRADE BOND FUND
. REAL ESTATE FUND
Defensive investing Each fund may depart from its principal investment
strategies by taking temporary defensive positions in response to adverse
market, economic or political conditions.
Derivative contracts Investing in the individual bonds and sectors considered
most attractive by the adviser may not necessarily enable Investment Grade Bond
Fund to achieve its target duration or interest rate sensitivity. This fund may
use derivative contracts to increase or decrease the fund's duration. In
addition, Real Estate Fund may use derivative contracts to manage the interest
rate risk associated with both its real estate and fixed income investments and
to stay fully invested in stocks when it has a significant cash position.
Even a small investment in derivative contracts can have a large impact on a
portfolio's interest rate sensitivity and stock market exposure. Therefore,
using derivatives can disproportionately increase portfolio losses and reduce
opportunities for gains when interest rates or stock prices are changing. A fund
may not fully benefit from or may lose money on derivatives if the adviser's
expectations in using them prove incorrect or if changes in their value do not
correspond accurately to changes in the value of the fund's other portfolio
holdings.
Some of the foreign securities purchased by either fund may be denominated in a
foreign currency, which could decline in value against the U.S. dollar.
Investment Grade Bond Fund generally will, and Real Estate Fund may, use
currency swaps and other currency derivatives to try to hedge against this risk.
However, a fund will probably not be able to achieve a perfect hedge because of
unavoidable discrepancies between the fund's foreign currency investments and
its currency derivatives. Either fund might perform less well than a fund that
does not hedge against foreign currency risk.
Counterparties to "over-the-counter" derivative contracts present the same types
of credit risk as issuers of fixed income securities. Derivatives can also make
a fund's portfolio less liquid and harder to value, especially in declining
markets.
Impact of high portfolio turnover Investment Grade Bond Fund may engage in
active and frequent trading to achieve its principal investment strategies.
Frequent trading increases transaction costs, which could detract from a fund's
performance.
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or a cash payment that is based on the change in value of a designated
security, currency or index.
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THE INVESTMENT ADVISER
ABOUT THE ADVISER. Sun Capital Advisers, Inc. is the funds' investment
adviser. The funds are the only investment companies managed by the adviser. The
adviser is an indirect wholly-owned subsidiary of Sun Life Assurance Company of
Canada (Sun Life of Canada). The adviser has been providing investment advice
and supervisory services to pension, qualified retirement and profit-sharing
plans of Sun Life of Canada and its affiliates since 1997. Sun Life of Canada is
a diversified financial services organization with total assets under management
in 1997 of $130 billion. Sun Life of Canada provides a broad range of financial
products and services to individuals and groups located in Canada, the United
States, the United Kingdom and the Asia Pacific Region.
The adviser provides the funds with investment research and portfolio
management services and manages certain aspects of the funds' business affairs.
For its services, the adviser receives a fee from each fund equal on an annual
basis to a percentage of the fund's average daily net assets. This table
describes the advisory fee paid by each fund.
Sun Capital Advisers, Inc. is the funds' investment adviser.
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MONEY MARKET INVESTMENT GRADE REAL ESTATE FUND
FUND BOND FUND
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[ ] [ ] [ ]
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PORTFOLIO MANAGERS. The adviser has selected the following persons to manage
the investments for the funds.
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FUND FUND POSITIONS DURING PAST FIVE YEARS
MANAGER(S)
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Investment Grade Bond Richard Vice president, Sun Capital Advisers, Inc., since 1992.
Fund and Money Market Gordon, Vice president, U.S. public bonds, Sun Life Assurance
Fund CFA Company of Canada, since 1994. Prior to that, assistant
vice president.
Howard C. Vice president, Sun Capital Advisers, Inc., since 1998.
Greene, Assistant vice president, U.S. public bonds, Sun Life
CFA Assurance Company of Canada, since 1996. Prior to
that, senior investment officer.
Real Estate Fund John T. Vice president, Sun Capital Advisers, Inc., since 1998.
Donnelly, Assistant vice president, U.S. equities, Sun Life
CFA Assurance Company of Canada, since 1997. Prior to
that, senior investment officer, U.S. public bonds (1994-
1997), and investment officer, portfolio management
(1991-1994).
Joseph Senior investment analyst, U.S. equities, Sun Life
Bozoyan Assurance Company of Canada, since 1997. Prior to
that, senior investment analyst and investment analyst,
U.S. public bonds.
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PURCHASE AND REDEMPTION INFORMATION
BUYING SHARES. Each fund sells its shares at net asset value (NAV) directly
to separate accounts established and maintained by insurance companies for the
purpose of funding variable contracts. Each fund credits investments to an
insurance company's separate account at the NAV next determined after acceptance
of the investment by the fund. Each fund may suspend the offer of its shares and
reserves the right to reject any specific purchase order. A fund may refuse a
purchase order if, in the adviser's opinion, the order is of a size that would
disrupt the management of a fund.
VALUATION OF SHARES. Each fund offers its shares at the NAV per share of
the fund. Each fund calculates its NAV once daily as of the close of regular
trading on the New York Stock Exchange (Exchange) (generally at 4:00 p.m., New
York time) on each day the Exchange is open. If the Exchange closes early, the
funds will accelerate the determination of NAV to the closing time. On any day
an international market is closed and the Exchange is open, a fund will value
its foreign securities, if any, at the prior day's close with the current day's
exchange rate.
Each fund values the securities in its portfolio on the basis of market
quotations and valuations provided by independent pricing services, or at fair
value as determined in good faith according to procedures approved by the
trustees. A fund may value securities at fair value when market quotations are
not available or the adviser believes that available market quotations do not
accurately represent the securities' actual value.
REDEEMING SHARES. Each fund redeems its shares on any business day.
Redemptions are effected at the NAV per share next determined after the fund
receives and accepts the redemption request. Normally, a fund forwards
redemption proceeds by bank wire to the redeeming insurance company on the next
business day after the fund receives the redemption instructions. Under unusual
circumstances, a fund may suspend redemptions or postpone payment for up to
seven (7) days or longer, as permitted by Federal securities laws.
AUTOMATIC TRANSACTIONS. Purchases and redemptions arising out of an
automatic transaction under an insurance contract are effected at the NAV per
share computed at the close of business on the day the automatic transaction
takes place, even though the fund does not receive the order for purchase or
redemption until after close of business. Automatic transactions include
investment of net premiums, death of insureds, deduction of fees and charges,
transfers, surrenders, loans, loan repayments, deductions of interest on loans,
lapses, reinstatements and similar automatic transactions .
Fund shares are offered exclusively to insurance company separate accounts.
Fund shares are offered at net asset value. The separate account does not pay a
sales charge to buy fund shares.
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DIVIDENDS AND DISTRIBUTIONS. Each fund intends to distribute all or
substantially all of its net capital gain, if any, and net investment income for
each taxable year. Investment Grade Bond Fund and Money Market Fund declare
dividends from net investment income daily and pay dividends monthly. Real
Estate Fund declares and pay dividends from net investment income annually. Each
fund distributes its net realized capital gains, if any, at least annually. It
is expected that an insurance company holding shares on behalf of a contract
holder will elect to reinvest dividends and capital gains in additional shares
of the fund that paid them.
TAXES. Shares of the funds are held and owned for federal tax purposes by
life insurance company separate accounts established in connection with variable
contracts, not by the owners of these variable contracts. Owners of variable
contracts should refer to the prospectuses for these contracts for a description
of the tax consequences of owning and receiving distributions or other payments
relating to these contracts. Each fund intends to comply with the federal tax
diversification and other federal tax requirements with which it must comply in
order for variable contracts to qualify for the tax treatment described in the
applicable variable contract prospectus. A fund's failure to comply with these
requirements could cause the holder of a variable contract based on a separate
account that invested in whole or in part in that fund to be subject to current
taxation of all income on the contract unless the Internal Revenue Service
permits correction of the failure, which cannot be assured.
Dividends from net capital gain are classified as long-term capital gain
and dividends from investment company taxable income are classified as ordinary
income for federal income tax purposes. Redemptions of fund shares are also
potentially taxable transactions. An insurance company should consult its own
tax adviser regarding whether these dividends and share redemption proceeds
received by separate accounts result in federal income tax liability for the
insurance company if they are allocated to reserves for, or used to pay
distributions on, the applicable variable contracts.
FUND DETAILS
YEAR 2000 ISSUE. Some computer systems in the financial services industry will
be unable to recognize dates after December 31, 1999. The funds' securities
trades, pricing and accounting services and other operations could be adversely
affected by the defects in computer systems utilized by the adviser, custodian
and transfer agent. The adviser is taking steps it believes are reasonably
designed to identify any potential problems with the computer systems it uses.
The funds' other service providers have told the adviser they are taking
comparable steps. The adviser does not believe that the Year 2000 issue will
have a material adverse effect on its business operations or results of
operations.
The funds distribute capital gain and income.
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<PAGE>
ADDITIONAL INFORMATION
The statement of additional information (SAI) provides more detailed
information about the funds and is incorporated into this prospectus by
reference. You may obtain free copies of the SAI, request other information and
discuss questions about the funds by contacting your agent, or the funds at:
Sun Capital Advisers Trust
P.O. Box XXXX
[Town], MA 00000-0000
Telephone: 1-800-XXX-XXXX
E-mail: [email protected]
Internet: http://www.XXXXXX.com
You can review the funds' SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies for a fee by
writing or calling:
Securities and Exchange Commission
Public Reference Room
Washington, D.C. 20549-6009.
Telephone: 1-800-SEC-0330
Free from the SEC's Internet website: http://www.sec.gov
SUN CAPITAL MONEY MARKET FUND
SUN CAPITAL INVESTMENT GRADE BOND FUND
SUN CAPITAL REAL ESTATE FUND
SUN CAPITAL ADVISERS TRUST
Investment Company Act File No. 811-
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<PAGE>
Sun Capital Advisers Trust
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Real Estate Fund
Statement of Additional Information
December 1, 1998
The statement of additional information is not a prospectus. The funds'
prospectus, dated December 1, 1998, may be obtained by contacting your agent or
the funds at:
Sun Capital Advisers Trust
P.O. Box XXXX
[Town], MA 00000-0000
Telephone: 1-800-XXX-XXXX
E-mail: [email protected]
Internet: http://www.XXXXXX.com
<PAGE>
TABLE OF CONTENTS
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More Information about the Funds' Investments.................... 1
Investment Strategy and Risks............................... 1
Investment Restrictions.......................................... 21
The Funds' Management............................................ 23
Trustees and Officers....................................... 23
Trustee Compensation........................................ 24
The Investment Adviser...................................... 24
Administrator............................................... 26
Transfer and Shareholder Servicing Agent.................... 26
Custodian................................................... 27
Independent Auditors........................................ 27
Information About The Trust's History And Organization........... 28
More Information About How The Funds Value Their Shares.......... 30
Taxes............................................................ 32
Brokerage Allocation............................................. 36
Calculation of Performance Information........................... 38
Appendix A....................................................... A-1
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MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
INVESTMENT STRATEGY AND RISKS. Each fund's principal investment strategies and
risks, as well as the securities in which each fund typically invests, are
described in the prospectus. Money Market Fund invests exclusively in high
quality U.S. dollar-denominated money market securities. Investment Grade Bond
Fund intends to invest at least 80% of its total assets in investment grade
bonds issued by U.S. and foreign companies, the U.S. Government and its agencies
and instrumentalities, including those that issue mortgage-backed securities,
foreign governments, including those in emerging market countries and
multinational organizations such as the World Bank. Real Estate Fund intends to
invest at least 80% of its total assets in REITs and other real estate
companies. More information about those securities is provided below.
Investment Grade Bond Fund and Money Market Fund are diversified mutual funds.
This means that with respect to 75% of Investment Grade Bond Fund's total
assets, the fund may not invest more than 5% of its assets in the outstanding
securities of any one issuer, or own more than 10% of the voting securities of
any one issuer (except U.S. government securities or securities of other
investment companies). With respect to Money Market Fund, this means that the
fund may not invest more than 5% of its assets in any one issuer (except U.S.
government securities and obligations of domestic banks). Real Estate Fund is
not diversified and may invest without regard to such limits. This means that
Real Estate Fund's net asset value may be more volatile because its portfolio
may be invested in fewer securities and more sensitive to events affecting the
value of these securities. However, Real Estate Fund must satisfy the
diversification tests under Sections 851(b)(3) and 817(h) of the Internal
Revenue Code of 1986, as amended (Code), (see discussion under the caption,
Taxes). Meeting these diversification tests may limit the Real Estate Fund's
volatility risk.
SECURITIES IN WHICH THE FUNDS MAY INVEST.
Common Shares. (Real Estate Fund) Common shares represent an equity
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(ownership) interest in a company or other entity. This ownership interest
often gives a fund the right to vote on measures affecting the company's
organization and operations. Although common shares generally have a history of
long-term growth in value, their prices, particularly those of smaller
capitalization companies, are often volatile in the short-term.
Preferred Shares. (All funds) Preferred shares represent a limited equity
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interest in a company or other entity and frequently have debt-like features.
Preferred shares are often entitled only to dividends at a specified rate, and
have a preference over common shares with respect to dividends and on
liquidation of assets. Preferred shares generally have lesser voting rights
than common shares. Because their dividends are often fixed, the value of some
preferred shares fluctuates inversely with changes in interest rates. Money
Market Fund may invest in certain types of preferred shares having debt-like
features to the extent that the preferred shares meet the maturity, quality and
diversification requirements applicable to the fund.
Convertible Securities. (Real Estate Fund; Investment Grade Bond Fund)
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Convertible securities are bonds, preferred shares and other securities that pay
a fixed rate of interest or dividends. However, they offer the buyer the
additional option of converting the security into common stock. The value of
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convertible securities depends partially on interest rate changes and the credit
quality of the issuer. The value of convertible securities is also sensitive to
company, market and other economic news, and will change based on the price of
the underlying common stock. Convertible securities generally have less
potential for gain than common stock, but also less potential for loss, since
their income provides a cushion against the stock's price declines. However,
because the buyer is also exposed to the risk and reward potential of the
underlying stock, convertible securities generally pay less income than similar
non-convertible securities.
Warrants and Rights. (Real Estate Fund; Investment Grade Bond Fund) Warrants
- -------------------
and rights are securities permitting, but not obligating, their holder to
purchase the underlying equity or fixed income securities at a predetermined
price. Generally, warrants and stock purchase rights do not carry with them the
right to receive dividends on or exercise voting rights concerning the
underlying equity securities. Further, they do not represent any rights in the
assets of the issuer. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they become
worthless if they are not exercised on or prior to their expiration date. As a
result, an investment in warrants and rights may entail greater investment risk
than certain other types of investments.
Real Estate Investment Trusts. (Real Estate Fund) REITs are pooled investment
- -----------------------------
vehicles that invest primarily in income producing real estate or real estate
related loans or interests. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest most of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest most of their assets in real estate mortgages and derive income from
interest payments. Like investment companies, such as Real Estate Fund, REITs
are not taxed on income distributed to shareholders if they comply with several
requirements of the Code. Real Estate Fund will indirectly bear its
proportionate share of any expenses (such as operating expenses and advisory
fees) paid by REITs in which it invests in addition to the expenses paid by the
Fund.
Risk Factors Associated with the Real Estate Industry. Although Real Estate
Fund does not invest directly in real estate, it does invest primarily in real
estate equity securities and does concentrate its investments in the real estate
industry, and, therefore, an investment in the fund may be subject to certain
risks associated with the direct ownership of real estate and with the real
estate industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning or applicable tax law;
costs resulting from the clean-up of, and liability to third parties for damages
resulting from, environmental problems; casualty or condemnation losses;
uninsured damages from floods, earthquakes or other natural disasters;
limitations on and variations in rents; and changes in interest rates.
In addition, if the fund has rental income or income from the disposition of
real property acquired as a result of a default on securities the fund owns, the
receipt of such income may adversely affect its ability to retain its tax status
as a regulated investment company. Investments by the fund in securities of
companies providing mortgage servicing will be subject to the risks associated
with refinancings and their impact on servicing rights.
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Fixed Income Securities. (All funds) Bonds and other fixed-income instruments
- -----------------------
are used by issuers to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest, and must repay the amount
borrowed at maturity. Some fixed-income securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values. Fixed-income securities have varying degrees of quality and varying
levels of sensitivity to changes in interest rates. A decrease in interest
rates will generally result in an increase in the value of a fund's fixed-income
securities, and, conversely, during periods of rising interest rates, the value
of a fund's fixed-income securities will generally decline. Longer-term bonds
are generally more sensitive to interest rate changes than shorter-term bonds.
Changes by recognized agencies in the rating of any fixed-income security and in
the ability of an issuer to make payments of interest and principal will also
affect the value of these investments.
Maturity and Duration. The effective maturity of an individual portfolio
security in which a fund invests is defined as the period remaining until the
earliest date when the fund can recover the principal amount of such security
through mandatory redemption or prepayment by the issuer, the exercise by the
fund of a put option, demand feature or tender option granted by the issuer or a
third party or the payment of the principal on the stated maturity date. The
effective maturity of variable rate securities is calculated by reference to
their coupon reset dates. Thus, the effective maturity of a security may be
substantially shorter than its final stated maturity. Unscheduled prepayments
of principal have the effect of shortening the effective maturities of
securities in general and mortgage-backed securities in particular. Prepayment
rates are influenced by changes in current interest rates and a variety of
economic, geographic, social and other factors and cannot be predicted with
certainty. In general, securities, such as mortgage-backed securities, may be
subject to greater prepayment rates in a declining interest rate environment.
Conversely, in an increasing interest rate environment, the rate of prepayment
may be expected to decrease. A higher than anticipated rate of unscheduled
principal prepayments on securities purchased at a premium or a lower than
anticipated rate of unscheduled prepayments on securities purchased at a
discount may result in a lower yield (and total return) to a fund than was
anticipated at the time the securities were purchased. A fund's reinvestment of
unscheduled prepayments may be made at rates higher or lower than the rate
payable on the original prepaid security thus affecting positively or negatively
the return realized by the fund.
Duration of an individual portfolio security is a measure of the security's
price sensitivity taking into account expected cash flow and prepayments under a
wide range of interest rate scenarios. In computing the duration of its
portfolio, a fund will have to estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. Each fund may use
various techniques to shorten or lengthen the option-adjusted duration of its
portfolio, including the acquisition of debt obligations at premium or discount,
and the use of mortgage swaps and interest rate swaps, caps, floors and collars.
Ratings Criteria. In general, the ratings of Moody's Investors Service, Inc.
(Moody's), Standard & Poor's Ratings Group (S&P), FitchIBCA and Duff & Phelps
Credit Rating Co. (Duff) represent the opinions of these agencies as to the
credit quality of the securities which they rate. However, these ratings are
relative and subjective and are not absolute standards of quality.
After its purchase by a fund, an issue of securities may cease to be rated or
its rating may be reduced below the minimum required for purchase by the fund.
Neither of these events will necessarily require the adviser, on behalf of a
fund, to sell the securities.
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Lower Rated High Yield Fixed Income Securities. (Real Estate Fund; Investment
Grade Bond Fund) Lower rated high yield fixed income securities are those rated
below Baa3 by Moody's, or below BBB-by S&P, FitchIBCA or Duff, or securities
which are unrated and determined by the adviser to be of comparable quality.
Investment Grade Bond Fund may invest in securities rated as low as B- by a
rating agency, which may indicate that the obligations are speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. Lower rated securities are generally referred to as
high yield bonds or junk bonds. See the Appendix attached to this Statement of
Additional Information for a description of the characteristics of the
categories. A fund may invest in eligible unrated securities which, in the
opinion of the adviser, offer comparable risks to those securities which are
rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income.
In addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The market price and liquidity of lower rated fixed
income securities generally respond to short-term economic, corporate and market
developments to a greater extent than do higher rated securities. These
developments are perceived to have a more direct relationship to the ability of
an issuer of lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market, or the reduced
availability of market quotations, will make it more difficult to dispose of the
bonds and accurately value a fund's assets. The reduced availability of
reliable, objective data may increase a fund's reliance on management's judgment
in valuing the high yield bonds. To the extent that a fund invests in these
securities, the achievement of the fund's objective will depend more on the
adviser's judgment and analysis than it would otherwise be. In addition, high
yield securities in a fund's portfolio may be susceptible to adverse publicity
and investor perceptions, whether or not the perceptions are justified by
fundamental factors. In the past, economic downturns and increases in interest
rates have caused a higher incidence of default by the issuers of lower-rated
securities and may do so in the future, particularly with respect to highly
leveraged issuers.
Credit Risk. Credit risk relates to the ability of the issuer to meet interest
or principal payments or both as they become due. Generally, lower quality,
higher yielding bonds are subject to credit risk to a greater extent than higher
quality, lower yielding bonds.
Interest Rate Risk. Interest rate risk refers to the fluctuations in value of
fixed-income securities resulting solely from the inverse relationship between
the market value of outstanding fixed-income securities and changes in interest
rates. An increase in interest rates will generally reduce the market value of
fixed-income investments, and a decline in interest rates will tend to increase
their value. In addition, debt securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater capital appreciation
and depreciation than obligations with shorter maturities. Fluctuations in the
market value of fixed-income securities subsequent to their acquisition will not
affect the interest payable on those securities, and thus the cash income from
such securities, but will be reflected in the valuations of those securities
used to compute a fund's net asset value.
Call Risk and Extension Risk. Call risk exists when the issuer may exercise its
right to pay principal on an obligation earlier than scheduled which would cause
cash flows to be returned earlier than expected. This typically results when
interest rates have declined, and a fund will suffer from having to reinvest in
lower yielding securities. Extension risk exists when the issuer may exercise
its right to
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pay principal on an obligation later than scheduled, which would cause cash
flows to be returned later than expected. This typically results when interest
rates have increased, and a fund will suffer from the inability to invest in
higher yield securities.
U.S. Government Securities. (All funds) U.S. government securities include:
- --------------------------
U.S. Treasury obligations and obligations issued or guaranteed by U.S.
government agencies, instrumentalities or sponsored enterprises which are
supported by (a) the full faith and credit of the U.S. Treasury (Government
National Mortgage Association (GNMA)), (b) the right of the issuer to borrow
from the U.S. Treasury (Federal Home Loan Banks), (c) the discretionary
authority of the U.S. Government to purchase certain obligations of the issuer
(Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC)), or (d) only the credit of the agency and a perceived
"moral obligation" of the U.S. government. No assurance can be given that the
U.S. Government will provide financial support to U.S. government agencies,
instrumentalities or sponsored enterprises in the future.
U.S. government securities also include Treasury receipts, zero coupon bonds,
U.S. Treasury inflation-indexed bonds, deferred interest securities and other
stripped U.S. government securities. The interest and principal components of
stripped U.S. Government securities are traded independently. The most widely
recognized trading program for such securities is the Separate Trading of
Registered Interest and Principal of Securities Program. U.S. Treasury
inflation-indexed obligations provide a measure of protection against inflation
by adjusting the principal amount for inflation. The semi-annual interest
payments on these obligations are equal to a fixed percentage of the inflation-
adjusted principal amount.
Mortgage-Backed Securities. (All funds) Mortgage-backed securities represent
- --------------------------
participation interests in pools of adjustable and fixed rate mortgage loans
secured by real property.
Unlike conventional debt obligations, mortgage-backed securities provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans. The
mortgage loans underlying mortgage-backed securities are generally subject to a
greater rate of principal prepayments in a declining interest rate environment
and to a lesser rate of principal prepayments in an increasing interest rate
environment. Under certain interest and prepayment scenarios, the fund may fail
to recover the full amount of its investment in mortgage-backed securities
notwithstanding any direct or indirect governmental or agency guarantee. Since
faster than expected prepayments must usually be invested in lower yielding
securities, mortgage-backed securities are less effective than conventional
bonds in "locking" in a specified interest rate. In a rising interest rate
environment, a declining prepayment rate may extend the average life of many
mortgage-backed securities. Extending the average life of a mortgage-backed
security reduces its value and increases the risk of depreciation due to future
increases in market interest rates.
The fund's investments in mortgage-backed securities may include conventional
mortgage pass through securities and certain classes of multiple class
collateralized mortgage obligations ("CMOs"). Mortgage pass-through securities
are fixed or adjustable rate mortgage-backed securities that provide for monthly
payments that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans. CMOs are issued
in multiple classes, each having different maturities, interest rates,
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payment schedules and allocations of principal and interest on the underlying
mortgages. Senior CMO classes will typically have priority over residual CMO
classes as to the receipt of principal and/or interest payments on the
underlying mortgages. The CMO classes in which a fund may invest include but
are not limited to sequential and parallel pay CMOs, including planned
amortization class ("PAC") and target amortization class ("TAC") securities.
Sequential pay CMOs apply payments of principal, including any prepayments, to
each class of CMO in the order of the final distribution date. Thus, no payment
of principal is made on any class until all other classes having an earlier
final distribution date have been paid in full. Parallel pay CMOs apply
principal payments and prepayments to two or more classes concurrently on a
proportionate or disproportionate basis. The simultaneous payments are taken
into account in calculating the final distribution date of each class. Real
Estate Fund and Investment Grade Bond Fund may invest in the most junior class
of CMO's (z-tranche) which involves risks similar to those associated with
investing in equity securities.
Different types of mortgage-backed securities are subject to different
combinations of prepayment, extension, interest rate and other market risks.
Conventional mortgage pass through securities and sequential pay CMOs are
subject to all of these risks, but are typically not leveraged. PACs, TACs and
other senior classes of sequential and parallel pay CMOs involve less exposure
to prepayment, extension and interest rate risk than other mortgage-backed
securities, provided that prepayment rates remain within expected prepayment
ranges or "collars." To the extent that the prepayment rates remain within
these prepayment ranges, the residual or support tranches of PAC and TAC CMOs
assume the extra prepayment, extension and interest rate risks associated with
the underlying mortgage assets.
Agency Mortgage Securities. (All funds) The funds may invest in mortgage-
backed securities issued or guaranteed by the U.S. Government, foreign
governments or any of their agencies, instrumentalities or sponsored
enterprises. Agencies, instrumentalities or sponsored enterprises of the U.S.
Government include but are not limited to the Government National Mortgage
Association, ("Ginnie Mae"), Federal National Mortgage Association ("Fannie
Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae
securities are backed by the full faith and credit of the U.S. Government, which
means that the U.S. Government guarantees that the interest and principal will
be paid when due. Fannie Mae securities and Freddie Mac securities are not
backed by the full faith and credit of the U.S. Government; however, these
enterprises have the ability to obtain financing from the U.S. Treasury. There
are several types of agency mortgage securities currently available, including,
but not limited to, guaranteed mortgage pass-through certificates and multiple
class securities.
Privately-Issued Mortgage-Backed Securities. (All funds) Mortgage-backed
securities may also be issued by trusts or other entities formed or sponsored by
private originators of and institutional investors in mortgage loans and other
foreign or domestic non-governmental entities (or represent custodial
arrangements administered by such institutions). These private originators and
institutions include domestic and foreign savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. Privately issued mortgage-backed
securities are generally backed by pools of conventional (i.e., non-government
guaranteed or insured) mortgage loans.
These mortgage-backed securities are not guaranteed by an entity having the
credit standing of GNMA, FNMA or FHLMC. In order to receive a high quality
rating, they normally are structured with one or more types of "credit
enhancement." These credit enhancements fall generally into two categories:
(1) liquidity protection and (2) protection against losses resulting after
default by a
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borrower and liquidation of the collateral. Liquidity protection refers to the
providing of cash advances to holders of mortgage-backed securities when a
borrower on an underlying mortgage fails to make its monthly payment on time.
Protection against losses resulting after default and liquidation is designed to
cover losses resulting when, for example, the proceeds of a foreclosure sale are
insufficient to cover the outstanding amount on the mortgage. This protection
may be provided through guarantees, insurance policies or letters of credit,
through various means of structuring the transaction or through a combination of
such approaches.
Asset-Backed Securities. (All funds) Asset-backed securities represent
- -----------------------
individual interests in pools of consumer loans, home equity loans, trade
receivables, credit card receivables, and other debt and are similar in
structure to mortgage-backed securities. The assets are securitized either in a
pass-through structure (similar to a mortgage pass-through structure) or in a
pay-through structure (similar to a CMO structure). Asset-backed securities may
be subject to more rapid repayment than their stated maturity date would
indicate as a result of the pass-through of prepayments of principal on the
underlying loans. During periods of declining interest rates, prepayment of
certain types of loans underlying asset-backed securities can be expected to
accelerate. Accordingly, a fund's ability to maintain positions in these
securities will be affected by reductions in the principal amount of the
securities resulting from prepayments, and the fund must reinvest the returned
principal at prevailing interest rates, which may be lower.
Asset-backed securities entail certain risks not presented by mortgage-backed
securities. The collateral underlying asset-backed securities may entail
features that make them less effective as security for payments than real estate
collateral. Debtors may have the right to set off certain amounts owed on the
credit cards or other obligations underlying the asset-backed security, or the
debt holder may not have a first (or proper) security interest in all of the
obligations backing the receivable because of the nature of the receivable or
state or federal laws granting protection to the debtor. Certain collateral may
be difficult to locate in the event of default, and recoveries on depreciated or
damaged collateral may not support payments on these securities. A fund may
invest in any type of asset-backed security if the adviser determines that the
security is consistent with the fund's investment objective and policies.
Structured Securities. (Real Estate Fund; Investment Grade Bond Fund)
- ---------------------
Structured securities include notes, bonds or debentures, the value of the
principal of and/or interest on which is determined by reference to changes in
the value of specific currencies, interest rates, commodities, indices or other
financial indicators (the Reference) or the relative change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that
in certain circumstances no principal is due at maturity and, therefore, may
result in the loss of the fund's investment. Structured securities may be
positively or negatively indexed, so that appreciation of the Reference may
produce an increase or decrease in the interest rate or value of the security at
maturity. In addition, the change in interest rate or the value of the security
at maturity may be a multiple of the change in the value of the Reference.
Consequently, leveraged structured securities entail a greater degree of market
risk than other types of debt obligations. Structured securities may also be
more volatile, less liquid and more difficult to accurately price than less
complex fixed income investments.
Pay-In-Kind, Delayed Payment and Zero Coupon Bonds. (Real Estate Fund;
- --------------------------------------------------
Investment Grade Bond Fund) These securities are generally issued at a discount
from their face value because actual interest
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payments are typically postponed until maturity or after a stated period. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. The market
prices of pay-in-kind, delayed payment and zero coupon bonds generally are more
volatile than the market prices of securities that pay interest periodically and
in cash, and are likely to respond to a greater degree to changes in interest
rates than interest-bearing securities having similar maturities and credit
quality. The fund generally accrues income on securities that are issued at a
discount and/or do not make current cash payments of interest for tax and
accounting purposes, which is required to be distributed to shareholders. The
fund's investments in pay-in-kind, delayed payment and zero coupon bonds may
require the fund to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
Floating Rate/Variable Rate Notes. (All funds) Some notes a fund may purchase
- ---------------------------------
may have variable or floating interest rates. Variable rates are adjustable at
stated periodic intervals; floating rates are automatically adjusted according
to a specified market rate for such investments, such as the percentage of the
prime rate of a bank, or the 91-day U.S. Treasury Bill rate. These obligations
may be secured by bank letters of credit or other support arrangements. If a
security would not satisfy a fund's credit quality standards without such a
credit support, the entity providing a bank letter or line of credit, guarantee
or loan commitment must meet a fund's credit quality standards.
The absence of an active secondary market for certain variable and floating rate
notes could make it difficult for a fund to dispose of the instruments, and a
fund could suffer a loss if the issuer defaults or there are periods during
which the fund is not entitled to exercise its demand rights. Variable and
floating rate instruments held by a fund will be subject to the fund's
limitation on investments in illiquid securities if a reliable trading market
for the instruments does not exist and the fund cannot demand payment of the
principal amount of such instruments within seven days.
Foreign Securities. (All funds) Each fund may invest in the securities of
- ------------------
corporate and governmental issuers located in or doing business in a foreign
country (foreign issuers). A company is considered to be located in or doing
business in a foreign country if it satisfies at least one of the following
criteria: (i) the equity securities of the company are traded principally on
stock exchanges in one or more foreign countries; (ii) it derives 50% or more of
its total revenue from goods produced, sales made or services performed in one
or more foreign countries; (iii) it maintains 50% or more of its assets in one
or more foreign countries; (iv) it is organized under the laws of a foreign
country; or (v) its principal executive offices are located in a foreign
country.
ADRs, EDRs, IDRs and GDRs. American Depository Receipts (ADRs) (sponsored or
unsponsored) are receipts typically issued by a U.S. bank, trust company or
other entity and evidence ownership of the underlying foreign securities. Most
ADRs are traded on a U.S. stock exchange. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S., so there
may not be a correlation between this information and the market value of the
unsponsored ADR. European Depository Receipts (EDRs) and International
Depository Receipts (IDRs) are receipts typically issued by a European bank or
trust company evidencing ownership of the underlying foreign securities. Global
Depository Receipts (GDRs) are receipts issued by either a U.S. or non-U.S.
banking institution evidencing ownership of the underlying foreign securities.
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Brady Bonds. (Investment Grade Bond Fund) Brady bonds are securities created
through the exchange of existing commercial bank loans to sovereign entities for
new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas
P. Brady. Brady bonds may be collateralized or uncollateralized, are issued in
various currencies (but primarily the U.S. dollar), and are actively traded in
the over-the-counter secondary market. Certain Brady bonds may be collateralized
as to principal due at maturity by U.S. Treasury zero coupon bonds with a
maturity equal to the final maturity of the bonds, although the collateral is
not available to investors until the final maturity of the bonds. Collateral
purchases are financed by the International Monetary Fund, the World Bank and
the debtor nation's reserves. Although Brady bonds may be collateralized by U.S.
government securities, repayment of principal and interest is not guaranteed by
the U.S. government. In light of the residual risk of Brady bonds and, among
other factors, the history of defaults with respect to commercial bank loans by
public and private entities in countries issuing Brady bonds, investments in
Brady bonds may be viewed as speculative. Brady bonds acquired by a fund might
be subject to restructuring arrangements or to requests for new credit, which
may reduce the value of the Brady bonds held by the fund.
Sovereign Debt Obligations. (All funds) Investment in sovereign debt
obligations involves special risks not present in domestic corporate debt
obligations. The issuer of the sovereign debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or interest when due, and a fund may have limited recourse in the
event of a default. During periods of economic uncertainty, the market prices of
sovereign debt, and a fund's net asset value, may be more volatile than prices
of U.S. debt obligations. In the past, certain emerging market countries have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic policies or repay principal or interest
when due may result in the cancellation of third-party commitments to lend funds
to the sovereign debtor, which may further impair such debtor's ability or
willingness to service its debts.
Obligations of Supranational Entities. (All funds) Each fund may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank and the Inter-American Development Bank. Each
supranational entity's lending activities are limited to a percentage of its
total capital (including "callable capital" contributed by its governmental
members at the entity's call), reserves and net income. Participating
governments may not be able or willing to honor their commitments to make
capital contributions to a supranational entity.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than the risks of domestic securities. There is
generally less publicly available information about foreign
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companies in the form of reports and ratings similar to those published about
issuers in the United States. Also, foreign issuers are generally not subject to
uniform accounting, auditing and financial reporting requirements comparable to
those applicable to United States issuers.
To the extent that a fund's foreign securities are denominated in currencies
other than the U.S. dollar, changes in foreign currency exchange rates will
affect the fund's net asset value, the value of dividends and interest earned,
gains and losses realized on the sale of securities, and any net investment
income and gains that the fund distributes to shareholders. Securities
transactions undertaken in some foreign markets may not be settled promptly so
that a fund's foreign investments may be less liquid and subject to the risk of
fluctuating currency exchange rates pending settlement.
Foreign securities may be purchased on over-the-counter markets or exchanges
located in the countries where an issuer's securities are principally traded.
Many foreign markets are not as developed or efficient as those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets. Securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although a fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
In certain foreign countries, there is the possibility of adverse changes in
investment or exchange control regulations, expropriation, nationalization or
confiscatory taxation, limitations on the removal of assets of a fund from a
country, political or social instability, or diplomatic developments. Moreover,
individual foreign economies may differ favorably or unfavorably from the United
States' economy in terms of growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Dividends, interest, and, in some cases, capital gains earned by a fund on
certain foreign securities may be subject to foreign taxes, thus reducing the
net amount of income or gains available for distribution to the fund's
shareholders.
The above risks may be intensified for investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. A fund may be required to establish special custodial or
other arrangements before making certain
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investments in those countries. Securities of issuers located in these countries
may have limited marketability and may be subject to more abrupt or erratic
price movements.
Bank and Corporate Obligations. (All funds) Commercial paper represents short-
- ------------------------------
term unsecured promissory notes issued in bearer form by banks or bank holding
companies, corporations and finance companies. The commercial paper purchased by
the funds consists of direct U.S. dollar denominated obligations of domestic or
foreign issuers. Bank obligations in which the funds may invest include
certificates of deposit, bankers' acceptances and fixed time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed time deposit to a third party, although there is
no market for such deposits. Bank notes and bankers' acceptances rank junior to
domestic deposit liabilities of the bank and pari passu with other senior,
unsecured obligations of the bank. Bank notes are not insured by the Federal
Deposit Insurance Corporation or any other insurer. Deposit notes are insured
by the Federal Deposit Insurance Corporation only to the extent of $100,000 per
depositor per bank.
Repurchase Agreements. (All funds) In a repurchase agreement, a fund would buy
- ---------------------
a security for a relatively short period (usually not more than 7 days) subject
to the obligation to sell it back to the repurchase agreement counterparty at a
fixed time and price plus accrued interest. A fund will enter into repurchase
agreements only with member banks of the Federal Reserve System and with
"primary dealers" in U.S. government securities.
Securities serving as collateral for each repurchase agreement must be delivered
to the fund's custodian either physically or in book-entry form. The collateral
must be marked to market daily so that each repurchase agreement will be fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, a fund could experience delays in liquidating
the underlying securities while the fund is trying to enforce its rights to the
collateral, possible below normal levels of income, decline in value of the
underlying securities or lack of access to income during this period, as well as
the expense of enforcing its rights.
Reverse Repurchase Agreements. (Real Estate Fund; Investment Grade Bond Fund)
- -----------------------------
A fund may also enter into reverse purchase agreements, which involve the sale
of U.S. government securities held in its portfolio to a counterparty with an
agreement that the fund will buy back the securities at a fixed future date at a
fixed price plus an agreed amount of "interest," which may be reflected in the
repurchase price. Reverse repurchase agreements are considered to be borrowings
by a fund. Reverse repurchase agreements involve the risk that the market value
of securities purchased by a fund with proceeds of the initial sale transaction
may decline below the repurchase price of the securities sold by the fund which
it is obligated to repurchase. A fund will also continue to be subject to the
risk of a decline in the market value of the securities sold under the
agreements because it will reacquire those securities upon effecting their
repurchase at a fixed price agreed in advance. A fund will not enter
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into reverse repurchase agreements or borrow money, except from banks as a
temporary measure for extraordinary emergency purposes in amounts not to exceed
one-third of the fund's total assets (including the amount borrowed) taken at
market value. A fund will not use leverage to attempt to enhance its return. A
fund will not purchase securities while outstanding borrowings exceed 5% of the
fund's total assets.
Mortgage "Dollar Roll" Transactions. (Investment Grade Bond Fund) The fund may
- -----------------------------------
enter into mortgage "dollar roll" transactions with selected banks and broker-
dealers. Under a dollar roll, the fund sells mortgage-backed securities and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. The fund will only enter
into covered rolls. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or liquid security position. Covered
rolls are not treated as a borrowing or other senior security and will be
excluded from the calculation of a fund's borrowings and other senior
securities. For financial reporting purposes, a fund treats mortgage dollar
rolls as two separate transactions: one involving the purchase of a security
and a separate transaction involving a sale. The fund does not currently intend
to enter into mortgage dollar roll transactions that are accounted for as a
financing.
Restricted Securities. (All funds) A fund may purchase securities that are not
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registered (restricted securities) under the Securities Act of 1933 (1933 Act),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and which are, therefore, restricted as to their resale. However, a fund will
not invest more than 15% of its net assets (10% for Money Market Fund) in
illiquid investments. The trustees may adopt guidelines and delegate to the
adviser the daily function of determining the monitoring and liquidity of
restricted securities. The trustees, however, will retain oversight as to, and
be ultimately responsible for, the determinations. If the adviser determines,
based upon a continuing review of the trading markets for specific Section 4(2)
paper or Rule 144A securities, that they are liquid, they will not be subject to
the 15% limit (10% for Money Market Fund) in illiquid investments. This
investment practice could have the effect of decreasing the level of liquidity
in the fund if sufficient numbers of qualified institutional buyers are not
interested in purchasing these restricted securities.
Forward Commitment and When-Issued Securities. (All funds) "When-issued"
- ---------------------------------------------
refers to securities whose terms are available and for which a market exists,
but which have not been issued. A fund will engage in when-issued purchases of
securities in order to obtain what is considered to be an advantageous price and
yield at the time of purchase. In when-issued transactions, frequently no
payment is made until delivery is due, often a month or more after the purchase.
In a forward commitment transaction, the fund contracts to purchase or sell
securities for a fixed price at a future date beyond customary settlement time.
When a fund engages in forward commitment and when-issued transactions, it
relies on the other party to consummate the transaction. The failure of the
issuer or other party to consummate the transaction may result in the fund's
losing the opportunity to obtain an advantageous price. The purchase of
securities on a when-issued or forward commitment basis also involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date.
On the date a fund enters into an agreement to purchase securities on a when-
issued or forward commitment basis, the fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total
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value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, a fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
Lending of Securities. (All funds) A fund may lend portfolio securities to
- ---------------------
brokers, dealers, and financial institutions if the loan is secured by cash,
U.S. government securities or other collateral according to applicable
regulatory requirements. A fund may reinvest any cash collateral in short-term
securities and money market funds. When a fund lends portfolio securities,
there is a risk that the borrower may fail to return the securities. As a
result, a fund may incur a loss or, in the event of the borrower's bankruptcy,
may be delayed in or prevented from liquidating the collateral. A fund may not
lend portfolio securities having a total value exceeding one-third of its total
assets.
Options on Securities and Securities Indices. (Real Estate Fund; Investment
- --------------------------------------------
Grade Bond Fund) A fund may purchase and write (sell) call and put options on
any securities in which it may invest or on any securities index based on
securities in which it may invest. These options may be listed on securities
exchanges or traded in the over-the-counter market. A fund may write covered
put and call options and purchase put and call options to enhance total return,
as a substitute for the purchase or sale of securities, or to protect against
declines in the value of portfolio securities and against increases in the cost
of securities to be acquired.
Writing Covered Options. A call option on securities written by a fund obligates
the fund to sell specified securities to the holder of the option at a specified
price if the option is exercised at any time before the expiration date. A put
option on securities written by a fund obligates the fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash settlement payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Writing covered call options may deprive a fund of the opportunity to profit
from an increase in the market price of the securities in its portfolio. Writing
covered put options may deprive a fund of the opportunity to profit from a
decrease in the market price of the securities to be acquired for its portfolio.
All call and put options written by a fund are covered. A written call option or
put option may be covered by (i) maintaining cash or liquid securities in a
segregated account with a value at least equal to a fund's obligation under the
option, (ii) entering into an offsetting forward commitment and/or (iii)
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the fund's net exposure on its written
option position. A written call option on securities is typically covered by
maintaining the securities that are subject to the option in a segregated
account. A fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index.
A fund may terminate its obligations under an exchange traded call or put option
by purchasing an option identical to the one it has written. Obligations under
over-the-counter options may be terminated only by entering into an offsetting
transaction with the counterparty to the option. These purchases are referred to
as "closing purchase transactions."
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Purchasing Options. A fund would normally purchase call options in anticipation
of an increase, or put options in anticipation of a decrease ("protective puts")
in the market value of securities of the type in which it may invest. A fund
may also sell call and put options to close out its purchased options.
The purchase of a call option would entitle a fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. A fund would ordinarily realize a gain on the purchase of a call option
if, during the option period, the value of such securities exceeded the sum of
the exercise price, the premium paid and transaction costs; otherwise the fund
would realize either no gain or a loss on the purchase of the call option.
The purchase of a put option would entitle a fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of a fund's portfolio securities. Put options may
also be purchased by a fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. A fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the fund's portfolio securities.
A fund's options transactions will be subject to limitations established by each
of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which a fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the adviser. An exchange, board of trade or other trading facility may order
the liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If a fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if a fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or
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<PAGE>
series of options) would cease to exist. However, outstanding options on that
exchange that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.
A fund's ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. (Real Estate Fund;
- --------------------------------------------------
Investment Grade Bond Fund) To seek to increase total return or hedge against
changes in interest rates or securities prices, a fund may purchase and sell
futures contracts, and purchase and write call and put options on these futures
contracts. A fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may
be based on various securities (such as U.S. government securities), securities
indices and any other financial instruments and indices. All futures contracts
entered into by the fund are traded on U.S. exchanges or boards of trade that
are licensed, regulated or approved by the Commodity Futures Trading Commission
("CFTC").
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, a fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures contracts are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that a fund proposes to acquire. When
interest rates are rising or securities prices are falling, a fund can seek to
offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, a fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
A fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices that would adversely affect the
value of the fund's portfolio securities. These futures contracts may
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include contracts for the future delivery of securities held by the fund or
securities with characteristics similar to those of the fund's portfolio
securities.
If, in the opinion of the adviser, there is a sufficient degree of correlation
between price trends for a fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in a fund's portfolio may
be more or less volatile than prices of these futures contracts, the adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available. The fund may also purchase futures
contracts as a substitute for transactions in securities, to alter the
investment characteristics of portfolio securities or to gain or increase its
exposure to a particular securities market.
Options on Futures Contracts. A fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give a fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a fund's assets. By writing a call
option, a fund becomes obligated, in exchange for the premium (upon exercise of
the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that a fund intends to purchase. However,
the fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. A fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
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Other Considerations. A fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that a fund is using futures and
related options for hedging purposes, futures contracts will be sold to protect
against a decline in the price of securities that the fund owns or futures
contracts will be purchased to protect the fund against an increase in the price
of securities it intends to purchase. The adviser will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the fund or securities or instruments which it expects to purchase. As evidence
of its hedging intent, a fund expects that on 75% or more of the occasions on
which it takes a long futures or option position (involving the purchase of
futures contracts), the fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures or option position is closed out. However, in particular
cases, when it is economically advantageous for the fund to do so, a long
futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that a fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the fund to purchase securities, require the fund to establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates or securities prices may result
in a poorer overall performance for a fund than if it had not entered into any
futures contracts or options transactions.
Perfect correlation between a fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. government securities. In the event
of an imperfect correlation between a futures position and a portfolio position
which is intended to be protected, the desired protection may not be obtained
and the fund may be exposed to risk of loss.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the fund from closing out
positions and limiting its losses.
Foreign Currency Transactions. (Real Estate Fund; Investment Grade Bond Fund)
- -----------------------------
A fund's foreign currency exchange transactions may be conducted on a spot
(i.e., cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market. A fund may also enter into
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forward foreign currency exchange contracts to enhance return, to hedge against
fluctuations in currency exchange rates affecting a particular transaction or
portfolio position, or as a substitute for the purchase or sale of a currency or
assets denominated in that currency. Forward contracts are agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract. Transaction hedging is the purchase or sale of
forward foreign currency contracts with respect to specific receivables or
payables of a fund accruing in connection with the purchase and sale of its
portfolio securities quoted or denominated in the same or related foreign
currencies. Portfolio hedging is the use of forward foreign currency contracts
to offset portfolio security positions denominated or quoted in the same or
related foreign currencies. A fund may elect to hedge less than all of its
foreign portfolio positions if deemed appropriate by the adviser.
If a fund purchases a forward contract or sells a forward contract for non-
hedging purposes, it will segregate cash or liquid securities, of any type or
maturity, in a separate account in an amount equal to the value of the fund's
total assets committed to the consummation of the forward contract. The assets
in the segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal to the
amount of the fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it
may not be possible for the fund to hedge against a devaluation that is so
generally anticipated that the fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to a fund of engaging in foreign currency transactions varies with such
factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Foreign Currency Options. A foreign currency option provides the option buyer
with the right to buy or sell a stated amount of foreign currency at the
exercise price on a specified date or during the option period. The owner of a
call option has the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not the obligation, to
sell the currency. When the option is exercised, the seller (i.e., writer) of
the option is obligated to fulfill the terms of the sold option. However, either
the seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on a foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on a foreign currency generally
rises in value if the underlying currency depreciates in value. Although
purchasing a foreign currency option can protect the fund against an adverse
movement in the value of a foreign currency, the option will not limit the
movement in the value of such currency. For example, if a fund was holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the fund would not have to exercise its put option. Likewise, if a
fund were to enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of
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purchase and the settlement date, the fund would not have to exercise its call.
Instead, the fund could acquire in the spot market the amount of foreign
currency needed for settlement.
Special Risks Associated with Foreign Currency Options. Buyers and sellers of
foreign currency options are subject to the same risks that apply to options
generally. In addition, there are certain additional risks associated with
foreign currency options. The markets in foreign currency options are relatively
new, and a fund's ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. Although a fund will
not purchase or write such options unless and until, in the opinion of the
adviser, the market for them has developed sufficiently to ensure that the risks
in connection with such options are not greater than the risks in connection
with the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by most of the same factors that
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and may
have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.,
less than $1 million) where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market. To the extent that the
U.S. option markets are closed while the markets for the underlying currencies
remain open, significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options markets until they
reopen.
Foreign Currency Futures Transactions. By using foreign currency futures
contracts and options on such contracts, the fund may be able to achieve many of
the same objectives as it would through the use of forward foreign currency
exchange contracts. The fund may be able to achieve these objectives possibly
more effectively and at a lower cost by using futures transactions instead of
forward foreign currency exchange contracts.
A foreign currency futures contract sale creates an obligation by the fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of currency futures
contracts is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the fund is immediately paid
the difference and realizes a gain, and if the price of the sale is less than
the price of the offsetting
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purchase, the fund pays the difference and realizes a loss. Similarly, the
closing out of a currency futures contract purchase is effected by the fund
entering into a currency futures contract sale. If the offsetting sale price
exceeds the purchase price, the fund realizes a gain, and if the offsetting sale
price is less than the purchase price, the fund realizes a loss.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options. Buyers and sellers of foreign currency futures contracts and related
options are subject to the same risks that apply to the use of futures
generally. In addition, the risks associated with foreign currency futures
contracts and options on futures are similar to those associated with options on
foreign currencies, as described above.
Swaps, Caps, Floors and Collars. (Real Estate Fund; Investment Grade Bond Fund)
- -------------------------------
As one way of managing its exposure to different types of investments, a 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 notional amount, for a specified 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 specified 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 a fund's investment exposure from one type of
investment to another. For example, if the fund agreed to exchange payments in
dollars for payments in a 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 a fund's investments and its
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 may have a considerable impact on a
fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions. A fund will maintain in a segregated account,
cash or liquid securities equal to the net amount, if any, of the excess of the
fund's obligations over its entitlements with respect to swap, cap, collar or
floor transactions.
Temporary Investments. (Real Estate Fund; Investment Grade Bond Fund) For
- ---------------------
temporary and defensive purposes, each fund may invest up to 100% of its total
assets in investment grade short-term fixed income securities, including short-
term U.S. government securities, money market instruments, including negotiable
certificates of deposit, non-negotiable fixed time deposits, bankers'
acceptances,
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<PAGE>
commercial paper, floating rate notes, and repurchase agreements. A fund may
also hold significant amounts of its assets in cash.
Short-Term Trading and Portfolio Turnover. (All funds) Short-term trading
- -----------------------------------------
means the purchase and subsequent sale of a security after it has been held for
a relatively brief period of time. A fund may engage in short-term trading in
response to stock market conditions, changes in interest rates or other economic
trends and developments, or to take advantage of yield disparities between
various fixed income securities in order to realize capital gains or improve
income. Short-term trading may have the effect of increasing portfolio turnover
rate. A high rate of portfolio turnover (100% or more) involves correspondingly
higher brokerage costs that must be borne directly by the fund and thus
indirectly by the shareholders, reducing the shareholder's return.
INVESTMENT RESTRICTIONS. Each fund has adopted fundamental investment
restrictions. These restrictions cannot be changed unless the change is
approved by the lesser of (1) 67% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the affected fund are present or represented by proxy, or (2) more than 50% of
the outstanding voting securities of the affected fund.
These fundamental restrictions provide that a fund may not:
1. Invest 25% or more of its total assets in securities of issuers in any one
industry, except that Real Estate Fund invests 25% or more of its total assets
in the real estate group of industries. Securities issued or guaranteed by the
United States government, its agencies or instrumentalities do not represent
industries.
2. Borrow money or issue senior securities except to the extent permitted by
the 1940 Act.
3. Make loans of securities to other persons, except loans of securities not
exceeding one-third of the fund's total assets, investments in debt obligations
and transactions in repurchase agreements.
4. Underwrite securities of other issuers, except insofar as the fund may be
deemed an underwriter under the Securities Act of 1933, as amended (the "1933
Act") in selling portfolio securities.
5. Purchase, sell or invest in real estate, but each fund subject to its other
investment policies and restrictions may invest in securities of companies that
deal in real estate or are engaged in the real estate business, including real
estate investment trusts, and securities secured by real estate or interests
therein and may hold and sell real estate acquired through default, liquidation
or other distributions of an interest in real estate as a result of the fund's
ownership of such securities.
6. Invest in commodities or commodity futures contracts, excluding
transactions in financial derivative contracts, such as forward currency
contracts; financial futures contracts and options on financial futures
contracts; options on securities, currencies and financial indices; and swaps,
caps, floors, collars and swaptions, as permitted by the fund's prospectus and
this statement of additional information.
7. Make investments that are inconsistent with the status of Investment Grade
Bond Fund and Money Market Fund as diversified funds.
-22-
<PAGE>
The 1940 Act currently prohibits the funds from issuing senior securities or
borrowing money, except that Real Estate Fund and Investment Grade Bond Fund may
borrow from banks or pursuant to reverse repurchase agreements in an amount not
exceeding one-third of total assets (including the amount borrowed). Each fund
is required to reduce the amount of its borrowings to not more than one-third of
total assets within three days after such borrowings first exceed this one-third
limitation.
Additional investment restrictions adopted by the funds, which may be changed by
the trustees, provide that a fund may not:
1. a. Investment Grade Bond Fund Only. With respect to 75% of the fund's
-------------------------------
assets, invest more than 5% of the fund's assets (taken at a market value at the
time of purchase) in the outstanding securities of any single issuer or own more
than 10% of the outstanding voting securities of any one issuer, in each case
other than (1) securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or (2) securities of other investment companies.
b. Money Market Fund Only. Except with respect to investments in
----------------------
obligations of (a) the U.S. Government, its agencies, authorities or
instrumentalities and (b) domestic banks, purchase any security if, as a result
(i) more than 5% of its assets would be invested in the securities of any one
issuer, or (ii) more than 25% of its assets would be invested in a particular
industry.
2. Invest more than 15% (10% for Money Market Fund) of its net assets (taken
at market value at the time of purchase) in illiquid securities.
3. Make investments for the purpose of exercising control or management.
4. Invest in other investment companies except as permitted under the 1940
Act.
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<PAGE>
THE FUNDS' MANAGEMENT
TRUSTEES AND OFFICERS. Each fund's business is managed by the trustees. The
trustees elect each fund's officers who are responsible for the day-to-day
operations of the fund and who execute the investment policies approved by the
trustees. Several of the funds' trustees and officers are also directors and
officers of Sun Life or the adviser. The table below provides more information
about the funds' trustees and officers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION
PAST 5 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
C. James Prieur* Trustee and Chairman Senior vice president and
One Sun Life Executive Park general manager, U.S.
Wellesley Hills, MA 02481 operations, Sun Life Assurance
Date of birth: April 21, 1951 Company of Canada, since
1997. Prior to that, vice
president, investments, U.S.
operations, Sun Life Assurance
Company of Canada. Chairman, Sun
Capital Advisers, Inc. since 1998
and director, Sun Capital
Advisers, Inc. since 1992.
- --------------------------------------------------------------------------------------------
Name Trustee
Address
Date of birth
- --------------------------------------------------------------------------------------------
Name Trustee
Address
Date of birth
- --------------------------------------------------------------------------------------------
Name Trustee
Address
Date of birth
- --------------------------------------------------------------------------------------------
Name Trustee
Address
Date of birth
- --------------------------------------------------------------------------------------------
James M.A. Anderson* President and Vice president, investments,
One Sun Life Executive Park Chief Executive U.S. operations, Sun Life
Wellesley Hills, MA 02481 Officer Assurance Company of
Date of birth: September 14, Canada, since 1998. Prior to
1949 that, vice president, securities
investments, Canada
operations, Sun Life Assurance
Company of Canada, 1995-98.
Prior to that, vice president,
mortgage investments, Canada
operations, Sun Life Assurance
Company of Canada, 1993-95.
President and director,
Sun Capital Advisers, Inc.
since 1998.
- --------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION
PAST 5 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Robert P. Vrolyk* Chief Financial Officer Vice president, finance, U.S.
One Sun Life Executive Park and Treasurer operations, Sun Life Assurance
Wellesley Hills, MA 02481 Company of Canada, since
Date of birth: April 15, 1953 1993. Vice president, treasurer
and director, Sun Capital
Advisors, Inc. since 1998.
- --------------------------------------------------------------------------------------------
Name* Secretary
Address
Date of birth
- --------------------------------------------------------------------------------------------
</TABLE>
* An interested person of the funds for purposes of the 1940 Act.
TRUSTEE COMPENSATION. The trust pays the trustees who are not interested
persons of the trust or the adviser for their service as trustees. The payments
described below are estimated for the current fiscal year. The trustees who are
officers or employees of Sun Life or the adviser are not paid by the trust for
their service as trustees.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
NAME AND AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL
POSITION WITH COMPENSATION RETIREMENT BENEFITS UPON COMPENSATION
THE TRUST FROM THE TRUST BENEFITS ACCRUED RETIREMENT FROM THE TRUST
AS PART OF FUNDS' PAID TO
EXPENSES TRUSTEES*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trustee name
- ----------------------------------------------------------------------------------------
Trustee name
- ----------------------------------------------------------------------------------------
Trustee name
- ----------------------------------------------------------------------------------------
Trustee name
- ----------------------------------------------------------------------------------------
</TABLE>
* The trust is the only registered investment company managed by the
adviser.
THE INVESTMENT ADVISER. Sun Capital Advisers, Inc., the funds' investment
adviser, is located at One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481. The adviser is a wholly-owned subsidiary of Sun Life
Assurance Company of Canada (U.S.) which is an indirect wholly-owned subsidiary
of Sun Life Assurance Company of Canada (Sun Life of Canada). Sun Life of
Canada is a mutual life insurance company incorporated pursuant to an Act of
Parliament of Canada in 1865. Sun Life of Canada and its affiliates currently
transact business in Canada, the United States, the United Kingdom and Asia
Pacific. Sun Life of Canada has established a record of financial strength that
has resulted in consistently outstanding ratings from A.M. Best, Duff & Phelps,
Moody's Investors' Service, Inc. and Standard & Poor's Ratings Group.
-25-
<PAGE>
The adviser is a Delaware corporation and a registered investment adviser. The
adviser provides investment management and supervisory services to pension and
profit-sharing accounts of Sun Life of Canada. Each fund will offer its shares
to separate accounts that are funding vehicles for variable contracts offered by
Sun Life of Canada and its affiliates and other insurance companies. It is also
expected that the adviser, through certain asset allocation programs offered to
holders of variable contracts offered by Sun Life of Canada and its affiliates,
will have discretion to allocate assets to the funds.
Restrictions on Personal Trading. In order to avoid conflicts with portfolio
trades for the funds, the adviser and the funds have adopted restrictions on
personal securities trading by personnel of the adviser and its affiliates.
Some of the adviser's restrictions include pre-clearance for all personal trades
and a ban on the purchase of initial public offerings. These restrictions
reflect the basic principle that the interests of the funds and their
shareholders come before the interests of personnel of the adviser and its
affiliates.
Terms of Advisory Agreement. Each fund has entered into an investment advisory
agreement with the adviser which was approved by the fund's trustees. Under the
terms of the advisory agreement, the adviser furnishes an investment program for
the fund and determines, subject to the overall supervision and review of the
trustees, which investments should be purchased, held, sold or exchanged and
provides supervision over all aspects of the fund's operations, except those
which are delegated to a custodian, transfer agent or other agent. The adviser
may enter into agreements with Sun Life of Canada to utilize the resources and
personnel of the company.
Each fund bears the cost of its operations not expressly assumed by the adviser
or another service provider. These costs include, but are not limited to,
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; taxes; expenses of redeeming shares; brokerage and other
expenses connected with the execution of portfolio securities transactions; fees
and expenses of custodians including those for keeping books and accounts and
calculating the net asset value of shares; [fees and expenses of transfer agents
and dividend disbursing agents;] legal, accounting, financial, management, tax
and auditing fees and expenses of the fund including an allocable portion of the
cost of the adviser's employees rendering such services to the fund; the
compensation and expenses of trustees who are not otherwise affiliated with the
trust, the adviser or any of their affiliates; expenses of trustees' and
shareholders' meetings; trade association membership; insurance premiums; and
any extraordinary expenses.
Each fund pays a fee monthly to the adviser for its advisory services based on a
stated percentage of the average daily net assets of the fund as follows:
<TABLE>
<S> <C>
-------------------------------------------------------
MONEY MARKET FUND [ ]
-------------------------------------------------------
INVESTMENT GRADE BOND FUND [ ]
-------------------------------------------------------
REAL ESTATE FUND [ ]
-------------------------------------------------------
</TABLE>
From time to time, the adviser may reduce its fee or make other arrangements to
limit a fund's expenses to a specified percentage of average daily net assets.
The adviser retains the right to
-26-
<PAGE>
reimpose a fee and recover any other payments to the extent that, at the end of
any fiscal year, the fund's annual expenses fall below this limit. The adviser
has voluntarily agreed to limit its advisory fee [and to reimburse each fund's
other expenses] [during what period] to reduce each fund's total annual
operating expenses.
Securities held by a fund may also be held by other funds or investment advisory
clients for which the adviser or any of its affiliates provides investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the adviser or for other funds or investment advisory clients
arise at or about the same time, transactions in the securities will be made,
insofar as feasible, for the respective funds or clients in a manner deemed
equitable to all of them. To the extent that transactions on behalf of more
than one client of the adviser or its affiliates may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on the price obtained by a fund.
Pursuant to the advisory agreement, the adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the funds in connection
with the matters to which its respective contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the adviser in the performance of its duties or from its reckless disregard of
the obligations and duties under the applicable agreement.
Under the advisory agreement, each fund may use the name "Sun Capital" or any
name derived from or similar to this name only for as long as the advisory
agreement or any extension, renewal or amendment of the agreement remains in
effect. If a fund's advisory agreement is no longer in effect, the fund will
cease to use such name or any other name indicating that it is advised by or
otherwise connected with the adviser. In addition, the adviser may grant the
non-exclusive right to use the name "Sun Capital" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which Sun Life of Canada or any subsidiary or affiliate of the company or any
successor to the business of the company or any subsidiary or affiliate of the
company is the investment adviser.
The advisory agreement initially expires on September [_], 2000, and will
continue in effect from year to year for each fund if approved by either the
vote of the fund's shareholders (if a shareholder vote is required) or the
trustees, including a vote of a majority of the trustees who are not parties to
the agreement or "interested persons" of any such party, cast at a meeting
called for such purposes. The advisory agreement may be terminated on 60 days'
written notice by any party or by a vote of a majority of the outstanding voting
securities of the affected fund and will terminate automatically if assigned.
[Accounting and Legal Services Agreement. Each fund is a party to an accounting
and legal services agreement with the adviser. Pursuant to this agreement, the
adviser provides the funds with certain tax, accounting and legal services.]
ADMINISTRATOR. [NAME AND ADDRESS] is the funds' administrator. [Name] is
responsible for managing the funds' business affairs. [Name's] services include
recordkeeping, preparation and filing of documents required to comply with
federal and state securities laws, supervising the activities of the custodian
and transfer and shareholder servicing agent and other administrative services
necessary to conduct the funds' business. For its services, [Name] receives
[describe compensation].
-27-
<PAGE>
[TRANSFER AND SHAREHOLDER SERVICING AGENT. [NAME AND ADDRESS] is the transfer
and shareholder servicing agent for the funds. [BRIEF DESCRIPTION OF
SERVICES.]]
CUSTODIAN. Each fund's portfolio securities are held pursuant to a master
custodian agreement between the trust and [Name and address.] Under the
custodian agreement, the custodian performs custody, portfolio and fund
accounting services. [If applicable, describe foreign custody arrangements.]
INDEPENDENT AUDITORS. The trustees have selected [NAME AND ADDRESS] as the
funds' independent auditor. [Name] audits and renders opinions on the funds'
annual financial statements and reviews the funds' annual federal income tax
returns.
-28-
<PAGE>
INFORMATION ABOUT THE TRUST'S HISTORY AND ORGANIZATION
DESCRIPTION OF THE TRUST'S SHARES. The trust is a business trust organized
under Delaware law. The trustees are responsible for the management and
supervision of the funds. The declaration of trust, dated July 13, 1998,
permits the trustees to issue an unlimited number of full and fractional shares
of beneficial interest of the funds, without par value. Under the declaration
of trust, the trustees have the authority to create and classify shares of
beneficial interest in separate series, without further action by shareholders.
As of the date of this statement of additional information, the trustees have
authorized shares only of the funds. Additional series may be added in the
future. The declaration of trust also authorizes the trustees to classify and
reclassify the shares of the funds, or any other series of the trust, into one
or more classes. As of the date of this statement of additional information,
the trustees have not authorized the issuance of additional classes of shares of
the funds.
Each share of a fund represents an equal proportionate interest in the assets
belonging to that fund. When issued, shares are fully paid and nonassessable.
In the event of liquidation of a fund, shareholders are entitled to share pro
rata in the net assets of the fund available for distribution to such
shareholders. Shares of a fund are freely transferable and have no preemptive,
subscription or conversion rights.
In accordance with the provisions of the declaration of trust, the trustees have
initially determined that shares entitle their holders to one vote per share on
any matter on which such shares are entitled to vote. The trustees may
determine in the future, without the vote or consent of shareholders, that each
dollar of net asset value (number of shares owned times net asset value per
share) will be entitled to one vote on any matter on which such shares are
entitled to vote.
The rights, if any, of variable contract holders to vote the shares of a fund
are governed by the participating insurance company's variable contract. For
information on the voting rights under a particular variable contract, see the
prospectus offering that variable contract.
Unless otherwise required by the 1940 Act or the declaration of trust, the funds
have no intention of holding annual meetings of shareholders. Shareholders may
remove a trustee by the affirmative vote of at least two-thirds of the trust's
outstanding shares. At any time that less than a majority of the trustees
holding office were elected by the shareholders, the trustees will call a
special meeting of shareholders for the purpose of electing trustees.
Under Delaware law, shareholders of a Delaware business trust are protected from
liability for acts or obligations of the trust to the same extent as
shareholders of a private, for-profit Delaware corporation. In addition, the
declaration of trust expressly provides that the trust has been organized under
Delaware law and that the declaration of trust will be governed by Delaware law.
It is possible that the trust might become a party to an action in another state
whose courts refuse to apply Delaware law, in which case the trust's
shareholders could be subject to personal liability.
To guard against this risk, the declaration of trust (i) contains an express
disclaimer of shareholder liability for acts or obligations of the trust and
provides that notice of this disclaimer may be given in each agreement,
obligation and instrument entered into or executed by the trust or its trustees,
(ii) provides for the indemnification out of trust or fund property of any
shareholders held personally liable for any obligations of the trust or of the
fund and (iii) provides that the trust shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligation of the
-29-
<PAGE>
trust and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss beyond his or her investment because of shareholder
liability with respect to a fund is limited to circumstances in which all of the
following factors are present: (1) a court refused to apply Delaware law; (2)
the liability arose under tort law or, if not, no contractual limitation of
liability was in effect; and (3) the fund itself would be unable to meet its
obligations. In the light of Delaware law, the nature of the trust business and
the nature of its assets, the risk of personal liability to a shareholder is
remote.
The declaration of trust further provides that the trust shall indemnify each of
its trustees and officers against liabilities and expenses reasonably incurred
by them, in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving the trustee or officer, directly or
indirectly, by reason of being or having been a trustee or officer of the trust.
The declaration of trust does not authorize the trust or any fund to indemnify
any trustee or officer against any liability to which he or she would otherwise
be subject by reason of or for willful misfeasance, bad faith, gross negligence
or reckless disregard of such person's duties.
-30-
<PAGE>
MORE INFORMATION ABOUT HOW THE FUNDS VALUE THEIR SHARES
For purposes of calculating the net asset value (NAV) of the shares of the
funds, the funds use the following procedures.
The funds generally value equity securities traded on a principal exchange or
NASDAQ National Market issues at their last sale price on the day of valuation.
The funds generally value equity securities for which no sales are reported on a
valuation day, and other securities traded over-the-counter, at the last
available bid price.
The funds value debt securities on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally use
electronic data processing techniques (matrix pricing) to value normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
The funds value short-term debt instruments that have a remaining maturity of 60
days or less at the time of purchase at amortized cost, which approximates
market value.
If market quotations are not readily available or if in the opinion of the
adviser any quotation or market price is not representative of true market
value, the funds may determine the fair value of any security in good faith in
accordance with procedures approved by the trustees.
Money Market Fund utilizes the amortized cost valuation method of valuing
portfolio instruments in the absence of extraordinary or unusual circumstances.
Under the amortized cost method, assets are valued by constantly amortizing over
the remaining life of an instrument the difference between the principal amount
due at maturity and the cost of the instrument to the fund. The trustees will
from time to time review the extent of any deviation of the net asset value, as
determined on the basis of the amortized cost method, from net asset value as
determined on the basis of available market quotations. If any deviation occurs
that may result in unfairness either to new investors or existing shareholders,
the trustees will take such actions as they deem appropriate to eliminate or
reduce this unfairness to the extent reasonably practicable. These actions may
include selling portfolio instruments prior to maturity to realize gains or
losses or to shorten the fund's average portfolio maturity, withholding
dividends, splitting, combining or otherwise recapitalizing outstanding shares
or using available market quotations to determine net asset value per share.
The funds value foreign securities, if any, on the basis of quotations from the
primary market in which they are traded. The fund's custodian translates assets
or liabilities expressed in foreign currencies into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York
time) on the date of determining a fund's NAV. If quotations are not readily
available, or the value has been materially affected by events occurring after
the closing of a foreign market, the funds may value their assets by a method
that the trustees believe accurately reflects fair value.
Each fund determines its NAV each business day at the close of regular trading
on the New York Stock Exchange (typically 4:00 p.m. eastern time) by dividing
the fund's net assets by the number of its shares outstanding. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a
-31-
<PAGE>
fund's NAV is not calculated. Consequently, a fund's portfolio securities may
trade and the NAV of that fund's shares may be significantly affected on days
when a shareholder has no access to that fund.
Redemptions in Kind. Although the funds would not normally do so, each fund has
the right to pay the redemption price of shares of the fund in whole or in part
in portfolio securities as prescribed by the trustees. When the shareholder
sells portfolio securities received in this fashion, a brokerage charge would be
incurred. The fund will value securities for the purpose of making a redemption
payment at the same value used in determining NAV.
-32-
<PAGE>
TAXES
Each fund is treated as a separate entity for federal income tax purposes. Each
fund intends to elect to be treated, and intends to quality for each taxable
year, as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). As such and by
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions, and the diversification of its
assets, each fund will not be subject to Federal income tax on taxable income
(including net realized capital gains) which is distributed to shareholders in
accordance with the timing and other requirements of the Code.
Qualification of a fund for treatment as a regulated investment company under
the Code requires, among other things, that (a) at least 90% of a fund's gross
income for its taxable year, without offset for losses from the sale or other
disposition of stock or securities or other transactions, be derived from
interest, dividends, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) each fund distribute to its shareholders
for each taxable year (in compliance with certain timing requirements) as
dividends at least 90% of the sum of its taxable and any tax-exempt net
investment income, the excess of net short-term capital gain over net long-term
capital loss and any other net income for that year (except for the excess, if
any, of net long-term capital gain over net short-term capital loss, which need
not be distributed in order for the fund to qualify as a regulated investment
company but is taxed to the fund if it is not distributed); and (c) each fund
diversify its assets so that, at the close of each quarter of its taxable year,
(i) at least 50% of the fair market value of its total (gross) assets is
comprised of cash, cash items, U.S. Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to no more than 5% of the fair market value of the fund's total
assets and 10% of the outstanding voting securities of such issuer and (ii) no
more than 25% of the fair market value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies) or of two or more issuers
controlled by the fund and engaged in the same, similar, or related trades or
businesses.
Each fund also intends to comply with the separate diversification requirements
imposed by Section 817(h) of the Code and the regulations thereunder on certain
insurance company separate accounts. These requirements, which are in addition
to the diversification requirements imposed on a fund by the 1940 Act and
Subchapter M of the Code, place certain limitations on assets of each insurance
company separate account used to fund variable contracts. Because Section
817(h) and those regulations treat the assets of the fund as assets of the
related separate account, these regulations are imposed on the assets of a fund.
Specifically, the regulations provide that, except as permitted by the "safe
harbor" described below, as of the end of each calendar quarter or within 30
days thereafter no more than 55% of the total assets of a fund 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. For this purpose, all securities of the same issuer are considered
a single investment, and each U.S. Government agency and instrumentality is
considered a separate issuer. Section 817(h) provides, as a safe harbor, that a
separate account will be treated as being adequately diversified if the
diversification requirements under Subchapter M are satisfied and no more than
55% of the value of the account's total assets is attributable to cash and cash
items (including receivables), U.S. Government securities and securities of
other regulated investment companies. Failure by a fund to both qualify as a
regulated investment company and satisfy the Section 817(h) requirements would
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generally cause the variable contracts to lose their favorable tax status and
require a contract holder to include in ordinary income any income accrued under
the contracts for the current and all prior taxable years. Under certain
circumstances described in the applicable Treasury regulations, inadvertent
failure to satisfy the applicable diversification requirements may be corrected,
but such a correction would require a payment to the Internal Revenue Service
based on the tax contract holders would have incurred if they were treated as
receiving the income on the contract for the period during which the
diversification requirements were not satisfied. Any such failure may also
result in adverse tax consequences for the insurance company issuing the
contracts. Failure by a fund to qualify as a regulated investment company would
also subject the fund to federal and state income taxation of all of its taxable
income and gain, whether or not distributed to shareholders.
If "seed money" contributed to any fund in connection with its organization
exceeds $250,000 or under certain other circumstances, the fund will be subject
to a 4% nondeductible federal excise tax on any amounts required to be but not
distributed under a prescribed formula. The formula requires that a fund
distribute (or be deemed to have distributed) to its shareholders during each
calendar year at least 98% of the fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over its capital losses realized
during the one-year period ending on October 31 of such year, and any income or
gain (as so computed) from the prior calendar year that was not distributed for
such year and on which the fund paid no income tax. Each fund intends generally
to seek to avoid liability for this tax.
Any dividend declared by a fund in October, November or December as of a record
date in such a month and paid the following January will be treated for federal
income tax purposes as received by shareholders on December 31 of the year in
which it is declared.
Any dividend (except a daily dividend) paid by a fund shortly after a
shareholder's purchase of shares will have the effect of reducing the net asset
value per share by the amount of the dividend distribution. Although such
dividends are, in effect, a partial return of the shareholder's purchase price,
they may be characterized as ordinary income or capital gain as described in the
prospectus.
If a fund acquires any equity interest in certain foreign corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, certain rents and royalties, or capital gains) or hold at
least 50% of their assets in investments producing such passive income ("passive
foreign investment companies"), that fund could be subject to Federal income tax
and additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the fund is timely distributed to its shareholders.
The fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may ameliorate these adverse tax
consequences, but any such election could require the applicable fund to
recognize taxable income or gain (subject to tax distribution requirements)
without the concurrent receipt of cash. These investments could also result in
the treatment of associated capital gains as ordinary income. Any fund that is
permitted to invest in foreign corporations may limit and/or manage its holdings
in passive foreign investment companies to minimize its tax liability or
maximize its return from these investments.
Foreign exchange gains and losses realized by a fund in connection with certain
transactions involving foreign currency-denominated debt securities, certain
foreign currency futures and options, foreign currency forward contracts,
foreign currencies, or payables or receivables denominated in a foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be
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treated as ordinary income and losses and may affect the amount, timing and
character of distributions to shareholders. Any such transactions that are not
directly related to a fund's investment in stock or securities, possibly
including speculative currency positions or currency derivatives not used for
hedging purposes, could under future Treasury regulations produce income not
among the types of "qualifying income" from which the fund must derive at least
90% of its annual gross income. Income from investments in commodities, such as
gold and certain related derivative instruments, is also not treated as
qualifying income under this test. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed a fund's investment
company taxable income computed without regard to such loss, the resulting
overall ordinary loss for such year would not be deductible by the fund or its
shareholders in future years.
A fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases.
Investments in debt obligations that are at risk of default may present special
tax issues for Investment Grade Bond Fund or Real Estate Fund. Tax rules may
not be entirely clear about issues such as when a fund may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and any other issues will be addressed by a fund, in the event
it invests in such securities, in order to seek to ensure that it distributes
sufficient income to preserve its status as a regulated investment company and
does not become subject to federal income or excise tax.
Each fund that invests in certain pay in-kind securities ("PIKs") (debt
securities whose interest payments may be made either in cash or in-kind), zero
coupon securities, deferred payment securities, or certain increasing rate
securities (and, in general, any other securities with original issue discount
or with market discount if the fund elects to include market discount in income
currently) must accrue income on such investments prior to the receipt of the
corresponding cash payments. However, each fund must distribute, at least
annually, all or substantially all of its net income, including such accrued
income, to shareholders to qualify as a regulated investment company under the
Code and avoid Federal income tax. Therefore, a fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy distribution
requirements.
Redemptions and exchanges of fund shares (except, generally, shares of the Money
Market Fund) are potentially taxable transactions for shareholders that are
subject to tax. Shareholders should consult their own tax advisers to determine
whether any particular transaction in fund shares is properly treated as a sale
for tax purposes, as the following discussion assumes, and to ascertain its tax
consequences in their particular circumstances. Any loss realized by a
shareholder upon the redemption, exchange or other disposition of shares with a
tax holding period of six months or less will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain with respect to such shares. Losses on redemptions or other dispositions
of shares may be disallowed under wash sale rules in the event of other
investments in the same fund (including through automatic reinvestment of
dividends and distributions) within a period of 61 days beginning 30 days before
and ending 30 days after a redemption or other disposition of shares. In
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<PAGE>
such a case, the disallowed portion of any loss would be included in the federal
tax basis of the shares acquired in the other investments.
Limitations imposed by the Code on regulated investment companies like the funds
may restrict a fund's ability to enter into futures, options and currency
forward transactions.
Certain options, futures and forward foreign currency transactions undertaken by
a fund may cause the fund to recognize gains or losses from marking to market
even though its securities or other positions have not been sold or terminated
and affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the fund. Also, certain of a
fund's losses on its transactions involving options, futures and forward foreign
currency contracts and/or offsetting or successor portfolio positions may be
deferred rather than being taken into account currently in calculating the
fund's taxable income or gains. These transactions may therefore affect the
amount, timing and character of a fund's distributions to shareholders. Certain
of the applicable tax rules may be modified if the fund is eligible and chooses
to make one or more of certain tax elections that may be available. The funds
will take into account the special tax rules (including consideration of
available elections) applicable to options, futures or forward contracts in
order to minimize any potential adverse tax consequences.
The tax rules applicable to dollar rolls, currency swaps and interest rate
swaps, caps, floors and collars may be unclear in some respects, and the funds
may be required to limit participation in such transactions in order to qualify
as regulated investment companies. Additionally, the fund may be required to
recognize gain, but not loss, if an option, collar, futures contract, swap,
short sale or other transaction that is not subject to the market-to-market
rules is treated as a constructive sale of an appreciated financial position in
the fund's portfolio under Section 1259 of the Code. The fund may have to sell
portfolio securities under disadvantageous circumstances to generate cash, or
borrow cash, to satisfy these distribution requirements.
If, as anticipated, each fund qualifies as a regulated investment company under
the Code, it will not be required to pay any Massachusetts income, corporate
excise or franchise taxes or any Delaware corporation income tax.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to the funds and certain aspects of their distributions. The
discussion does not address special tax rules applicable to insurance companies.
Shareholders should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership or redemption of shares of, and receipt of
distributions from, a fund in their particular circumstances.
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BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the adviser and the officers of
the trust pursuant to recommendations made by [the portfolio managers] [its
investment committee, which consists of officers and directors of the adviser
and affiliates and officers and trustees who are interested persons of the
funds.] Orders for purchases and sales of securities are placed in a manner
which, in the opinion of the adviser, will offer the best price and market for
the execution of each transaction. Purchases of portfolio securities from
underwriters may include a commission or commissions paid by the issuer, and
transactions with dealers serving as market makers reflect a "spread."
In the U.S. and some other countries, debt securities are generally traded on a
net basis through dealers acting for their own account as principals and not as
brokers; no brokerage commissions are payable on these transactions. In other
countries, both debt and equity securities are traded on exchanges at fixed
commission rates. Commissions on foreign transactions are generally higher than
the negotiated commission rates available in the U.S. There is generally less
government supervision and regulation of foreign stock exchanges and broker-
dealers than in the U.S.
Purchases and sales of exchange-traded options and futures will be effected
through brokers who charge a commission for their services.
Each fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed.
To the extent consistent with the foregoing, each fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the adviser, and their value
and expected contribution to the performance of the fund. It is not possible to
place a dollar value on information and services to be received from brokers and
dealers, since it is only supplementary to the research efforts of the adviser.
The receipt of research information is not expected to reduce significantly the
expenses of the adviser. The research information and statistical assistance
furnished by brokers and dealers may benefit Sun Life of Canada or other
advisory clients of the adviser, and conversely, brokerage commissions and
spreads paid by other advisory clients of the adviser may result in research
information and statistical assistance beneficial to the funds. The funds will
not make commitments to allocate portfolio transactions on any prescribed basis.
While the adviser's officers will be primarily responsible for the allocation of
each fund's brokerage business, the policies and practices of the adviser in
this regard must be consistent with the foregoing, and will at all times be
subject to review by the trustees.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, a fund may
pay to a broker which provides brokerage and research services to the fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the adviser that the price is reasonable in light of
the services provided viewed either in terms of the specific transaction
involved in the adviser's overall duties to the accounts or the policies that
the trustees may adopt from time to time.
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Other investment advisory clients advised by the adviser may also invest in the
same securities as the funds. When these clients buy or sell the same
securities at substantially the same time, the adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the adviser believes to be equitable to each client, including the
funds. In individual instances, this investment procedure may adversely affect
the price to be paid or received by a fund or the size of the position
attainable for it. On the other hand, to the extent permitted by law, the
adviser may aggregate securities to be sold or purchased for the funds with
those to be sold or purchased for other clients managed by it in order to obtain
overall best execution for its participating clients.
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<PAGE>
CALCULATION OF PERFORMANCE INFORMATION
YIELD (EXCEPT FOR MONEY MARKET FUND). The yield of each fund (except for Money
Market Fund) is computed by dividing net investment income per share determined
for a 30-day period by the net asset value per share on the last day of the
period, according to the following standard formula:
Yield = 2 ([(a-b/cd)+1]/6/-1)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the net asset value per share on the last day of the period.
MONEY MARKET FUND YIELD. For the purposes of calculating yield for the Money
Market Fund, daily income per share consists of interest and discount earned on
the fund's investments less provision for amortization of premiums and
applicable expenses, divided by the number of shares outstanding, but does not
include realized or unrealized appreciation or depreciation.
Yield calculations are based on the value of a hypothetical preexisting account
with exactly one share at the beginning of the seven day period. Yield is
computed by determining the net change in the value of the account during the
base period and dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return. Base period is
multiplied by 365/7 and the resulting figure is carried to the nearest 100th of
a percent. Net change in account value during the base period includes
dividends declared on the original share, dividends declared on any shares
purchased with dividends of that share and any account or sales charges that
would affect an account of average size, but excludes any capital changes.
Effective yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical preexisting 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:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)/365/7/]-1
TOTAL RETURN. Each fund's total return is computed by finding the average
annual compounded rate of return over the indicated period that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
T=SQUARE ROOT n ERV/P - 1
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Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the indicated period.
This calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period. The "distribution
rate" is determined by annualizing the result of dividing the declared dividends
of a fund during the period stated by the net asset value at the end of the
period.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period.
From time to time, in reports and promotional literature, a fund's yield and
total return will be compared to indices of mutual funds and other relevant
broad based indices.
Performance rankings and ratings reported periodically in national financial
publications such as Money Magazine, Forbes, Business Week, The Wall Street
Journal, Micropal, Inc., Morningstar, Stanger's and Barron's, etc. will also be
utilized. A fund's promotional and sales literature may make reference to the
fund's "beta." Beta reflects the market-related risk of the fund by showing how
responsive the fund is to the market.
The performance of a fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of a fund for any
period in the future. The performance of a fund is a function of many factors
including its earnings, expenses and number of outstanding shares. Fluctuating
market conditions; purchases, sales and maturities of portfolio securities;
sales and redemptions of shares of beneficial interest; and changes in operating
expenses are all examples of items that can increase or decrease a fund's
performance.
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APPENDIX A
MOODY'S INVESTORS SERVICE, INC.
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations 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.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead a weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
BB,B: Debt rated BB, and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
DUFF & PHELPS CREDIT RATING CO.
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB: Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB: Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
FITCHIBCA
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
development, short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and
A-2
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therefore impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
however, business and financial alternatives can be identified which could
assist the obligor satisfying its debt service requirements.
B: Bonds are considered highly speculative, significant credit risk is present,
but a limited margin of safety remains. Financial commitments are currently
being met; however, capacity for continued payment is contingent upon a
sustained, favorable business and economic development.
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SUN CAPITAL ADVISERS TRUST
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Agreement and Declaration of Trust, dated July 13, 1998.*
(b) By-Laws, dated July 13, 1998.*
(c) Instruments Defining Rights of Securityholders -- [Not Applicable]
(d) Form of Investment Advisory Agreement, dated _________ __, 1998./1/
(e) Underwriting Agreement -- [Not Applicable]
(f) Bonus or Profit Sharing Agreements -- [Not Applicable]
(g) Form of Custodian Agreement, dated _________ __, 1998./1/
(h)(1) Form of Administration Agreement, dated _________ __, 1998./1/
(h)(2) Form of Transfer Agency and Shareholder Service Agreement, dated
_________ __, 1998./1/
(i) Opinion and Consent of Counsel/1/
(j) Consent of Certified Public Accountants/1/
(k) Financial Statements Omitted from Item 23 -- [Not Applicable]
(l) Letter of Understanding relating to initial capital/1/
(m) Rule 12b-1 Plan -- [Not Applicable]
(n) Financial Data Schedule -- [Not Applicable]
(o) Rule 18f-3 Plan -- [Not Applicable]
(p) Powers of Attorney./1/
* Filed herewith.
/1/ To be filed by subsequent amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
The Registrant was organized by an affiliate of Sun Life Assurance Company of
Canada primarily to provide a funding vehicle for assets received by various
separate accounts of Sun Life Assurance Company of Canada and its affiliated
insurance companies. Shares held by these separate accounts will be voted as
directed by the owners of variable contracts participating in these separate
accounts.
ITEM 25. INDEMNIFICATION
Except as noted, there is no contract, arrangement or statute under which any
trustee or officer of the Registrant is insured or indemnified.
Under the Agreement and Declaration of Trust, dated July 13, 1998, establishing
the Registrant as a trust under Delaware law, Article IV, Section 3 provides
indemnification for the Registrant's trustees and officers, except that no
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trustee or officer will be indemnified against any liability of which the
trustee or officer would otherwise be subject by reason of or for willful
misfeasance, bad faith, gross negligence or reckless disregard of such person's
duties.
Registrant's trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their capacities as such.
Trustees and officers of the Registrant who are directors, officers or employees
of the adviser may be entitled to indemnification in their capacities as
directors, officers or employees of the adviser.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
All of the information required by this item is set forth in the Form ADV of the
Registrant's investment adviser, Sun Capital Advisers, Inc. The following
sections of the Form ADV are incorporated herein by reference:
(a) Items 1 and 2 of Part 2; and
(b) Item 6, Business Background, of each Schedule D.
ITEM 27. PRINCIPAL UNDERWRITERS
None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the Rules promulgated thereunder are
maintained by the Registrant, in whole or in part, at its principal executive
office at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, or
at the offices of Registrant's custodian and transfer agent.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
None.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Wellesley, The Commonwealth of
Massachusetts, on the 14th day of July, 1998.
SUN CAPITAL ADVISERS TRUST
By: /s/ James M.A. Anderson
--------------------------------
James M.A. Anderson
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ C. James Prieur
- ------------------------------
C. James Prieur Trustee July 14, 1998
/s/ James M.A. Anderson
- ------------------------------
James M.A. Anderson Chief Executive Officer July 14, 1998
/s/ Robert P. Vrolyk
- -----------------------------
Robert P. Vrolyk Chief Financial Officer July 14, 1998
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EXHIBIT INDEX
-------------
Exhibit
Number
- ------
(a) Agreement and Declaration of Trust, dated July 13, 1998.
(b) By-Laws, dated July 13, 1998.
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SUN CAPITAL ADVISERS TRUST
AGREEMENT AND
DECLARATION OF TRUST
JULY 13, 1998
<PAGE>
TABLE OF CONTENTS
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Page
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<S> <C>
ARTICLE I NAME AND DEFINITIONS....................................... 1
Section 1 Name....................................................... 1
Section 2 Definitions................................................ 1
ARTICLE II THE TRUSTEES............................................... 3
Section 1 Management of the Trust.................................... 3
Section 2 Powers..................................................... 3
Section 3 Certain Transactions....................................... 8
Section 4 Initial Trustees; Election and Number of Trustees.......... 8
Section 5 Term of Office of Trustees................................. 9
Section 6 Vacancies; Appointment of Trustees......................... 9
Section 7 Temporary Vacancy or Absence............................... 9
Section 8 Chairman................................................... 9
Section 9 Action by the Trustees..................................... 10
Section 10 Ownership of Trust Property................................ 10
Section 11 Effect of Trustees Not Serving............................. 11
Section 12 Trustees, etc. as Shareholders............................. 11
Section 13 Series Trustees............................................ 11
ARTICLE III CONTRACTS WITH SERVICE PROVIDERS........................... 12
Section 1 Underwriting Contract...................................... 12
Section 2 Advisory or Management Contract............................ 12
Section 3 Administration Agreement................................... 12
Section 4 Service Agreement.......................................... 13
Section 5 Transfer Agent............................................. 13
Section 6 Custodian.................................................. 13
Section 7 Affiliations of Trustees or Officers, Etc.................. 13
ARTICLE IV COMPENSATION, LIMITATION OF LIABILITY AND
INDEMNIFICATION............................................ 14
Section 1 Compensation............................................... 14
Section 2 Limitation of Liability.................................... 14
Section 3 Indemnification............................................ 15
Section 4 Indemnification of Shareholders............................ 16
Section 5 No Bond Required of Trustees............................... 17
</TABLE>
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<TABLE>
<S> <C>
Section 6 No Duty of Investigation; Notice in Trust Instruments, Etc. 17
Section 7 Reliance on Experts, Etc................................... 17
ARTICLE V SERIES; CLASSES; SHARES.................................... 18
Section 1 Establishment of Series or Class........................... 18
Section 2 Shares..................................................... 18
Section 3 Investment in the Trust.................................... 19
Section 4 Assets and Liabilities of Series........................... 19
Section 5 Ownership and Transfer of Shares........................... 20
Section 6 Status of Shares; Limitation of Shareholder Liability...... 21
ARTICLE VI DISTRIBUTIONS AND REDEMPTIONS.............................. 22
Section 1 Distributions.............................................. 22
Section 2 Redemptions................................................ 22
Section 3 Determination of Net Asset Value........................... 23
Section 4 Suspension of Right of Redemption.......................... 23
Section 5 Repurchase by Agreement.................................... 23
ARTICLE VII SHAREHOLDERS' VOTING POWERS AND MEETINGS................... 24
Section 1 Voting Powers.............................................. 24
Section 2 Quorum; Required Vote...................................... 25
Section 3 Record Dates............................................... 25
Section 4 Additional Provisions...................................... 26
ARTICLE VIII EXPENSES OF THE TRUST AND SERIES........................... 26
Section 1 Payment of Expenses by the Trust........................... 26
Section 2 Payment of Expenses by Shareholders........................ 26
ARTICLE IX MISCELLANEOUS.............................................. 27
Section 1 Trust Not a Partnership.................................... 27
Section 2 Trustee Action............................................. 27
Section 3 Termination of the Trust................................... 27
Section 4 Reorganization............................................. 28
Section 5 Declaration of Trust....................................... 29
Section 6 Applicable Law............................................. 29
Section 7 Amendments................................................. 30
Section 8 Derivative Actions......................................... 30
</TABLE>
ii
<PAGE>
SUN CAPITAL ADVISERS TRUST
--------------------------
AGREEMENT AND
-------------
DECLARATION OF TRUST
--------------------
This AGREEMENT AND DECLARATION OF TRUST is made on July 13, 1998 by C.
James Prieur (together with all other persons from time to time duly elected,
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, the "Trustees");
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the Trust shall be held and managed in trust pursuant to this
Agreement and Declaration of Trust.
ARTICLE I
----------
NAME AND DEFINITIONS
--------------------
Section 1. Name. The name of the Trust created by this Agreement and
----
Declaration of Trust is "Sun Capital Advisers Trust".
Section 2. Definitions. Unless otherwise provided or required by the context:
-----------
(a) "Administrator" means the party, other than the Trust, to the
-------------
contract described in Article III, Section 3 hereof.
(b) "By-laws" means the By-laws of the Trust adopted by the Trustees, as
-------
amended from time to time, which By-laws are expressly herein incorporated by
reference as part of the "governing instrument" within the meaning of the
Delaware Act.
(c) "Class" means the class of Shares of a Series established pursuant
-----
to Article V.
(d) "Commission," "Eligible Foreign Custodian," "Qualified Foreign
---------- -------------------------- -----------------
Bank," "Interested Person" and "Principal Underwriter" have the meanings
----------------- ---------------------
provided in the 1940 Act. Except as such term may be otherwise defined by the
Trustees in conjunction with the establishment of any Series of Shares, the term
"majority shareholder vote" shall have the same meaning as is assigned to the
-------- ----------- ----
term "vote of a majority of the outstanding voting securities" in the 1940 Act.
---- -- - -------- -- --- ----------- ------ ----------
1
<PAGE>
(e) "Covered Person" means a person so defined in Article IV, Section 2.
--------------
(f) "Custodian" means any Person other than the Trust who has custody of
---------
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(g) "Declaration" shall mean this Agreement and Declaration of Trust, as
-----------
amended or restated from time to time. Reference in this Declaration of Trust
to "Declaration," "hereof," "herein," and "hereunder" shall be deemed to refer
to this Declaration rather than exclusively to the article or section in which
such words appear.
(h) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
------------
entitled "Treatment of Delaware Business Trusts," as amended from time to time.
(i) "Fund Complex" has the meaning provided in the Securities Exchange Act
------------
of 1934, as amended.
(j) "Distributor" means the party, other than the Trust, to the contract
-----------
described in Article III, Section 1 hereof.
(k) "He," "him" and "his" shall include the feminine and neuter, as well as
-- --- ---
the masculine, genders.
(l) "Investment Adviser" means the party, other than the Trust, to the
------------------
contract described in Article III, Section 2 hereof.
(m) "Net Asset Value" means the net asset value of each Series of the
---------------
Trust, determined as provided in Article VI, Section 3.
(n) "Person" means and includes individuals, corporations, partnerships,
------
trusts, associations, joint ventures, estates and other entities, and
governments and agencies and political subdivisions, thereof, whether domestic
or foreign.
(o) "Series" means a series of Shares established pursuant to Article V.
------
(p) "Shareholder" means a record owner of Outstanding Shares;
-----------
(q) "Shares" means the equal proportionate transferable units of interest
------
into which the beneficial interest of each Series or Class is divided from time
to time (including whole Shares and fractions of Shares). "Outstanding Shares"
means Shares shown in the books of the Trust or its transfer agent as then
issued and outstanding,
2
<PAGE>
but does not include Shares which have been repurchased or redeemed by the Trust
and which are held in the treasury of the Trust.
(r) "Transfer Agent" means any Person other than the Trust who maintains
--------------
the Shareholder records of the Trust, such as the list of Shareholders, the
number of Shares credited to each account, and the like.
(s) "Trust" means Sun Capital Advisers Trust established hereby, and
-----
reference to the Trust, when applicable to one or more Series, refers to that
Series.
(t) "Trustees" means the person who has signed this Declaration of Trust,
--------
so long as he shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly qualified and serving as
Trustees in accordance with Article II, in all cases in their capacities as
Trustees hereunder.
(u) "Trust Property" means any and all property, real or personal, tangible
--------------
or intangible, which is owned or held by or for the Trust or any Series or the
Trustees on behalf of the Trust or any Series.
(v) The "1940 Act" means the Investment Company Act of 1940, as amended
--------
from time to time.
ARTICLE II
----------
THE TRUSTEES
------------
Section 1. Management of the Trust. The business and affairs of the Trust
-----------------------
shall be managed by or under the direction of the Trustees, and they shall have
all powers necessary or desirable to carry out that responsibility. The Trustees
may execute all instruments and take all action they deem necessary or desirable
to promote the interests of the Trust. Any determination made by the Trustees in
good faith as to what is in the interests of the Trust shall be conclusive. In
construing the provisions of this Declaration, the presumption shall be in favor
of a grant of power to the Trustees.
Section 2. Powers. The Trustees in all instances shall act as principals,
------
free of the control of the Shareholders. The Trustees shall have full power and
authority to take or refrain from taking any action and to execute any contracts
and instruments that they may consider necessary or desirable in the management
of the Trust. The Trustees shall not in any way be bound or limited by current
or future laws or customs applicable to trust investments, but shall have full
power and authority to
3
<PAGE>
make any investments which they, in their sole discretion, deem proper to
accomplish the purposes of the Trust. The Trustees may exercise all of their
powers without recourse to any court or other authority. Subject to any
applicable limitation herein or in the By-laws or resolutions of the Trust, the
Trustees shall have power and authority, without limitation:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, cash; securities,
including common, preferred and preference stocks; warrants; subscription
rights; profit-sharing interests or participations and all other contracts for
or evidence of equity interests; bonds, debentures, bills, time notes and all
other evidences of indebtedness; negotiable or non-negotiable instruments;
government securities, including securities of any state, municipality or other
political subdivision thereof, or any governmental or quasi-governmental agency
or instrumentality; and money market instruments including bank certificates of
deposit, finance paper, commercial paper, bankers' acceptances and all kinds of
repurchase agreements, of any corporation, company, trust, association, firm or
other business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or quasi-
governmental agency or instrumentality; or any other security, property or
instrument in which the Trust or any of its Series shall be authorized to
invest.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend and to pledge any such securities, to enter into
repurchase agreements, reverse repurchase agreements, firm commitment agreements
and forward foreign currency exchange contracts, to purchase and sell options on
securities, securities indices, currency and other financial assets, futures
contracts and options on futures contracts of all descriptions and to engage in
all types of hedging and risk-management transactions.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities and repurchase agreements included in the Trust Property,
including the right to vote thereon and otherwise act with respect thereto and
to do all acts for the preservation, protection, improvement and enhancement in
value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash or foreign currency, and any interest therein.
4
<PAGE>
(f) To borrow money or other property in the name of the Trust exclusively
for Trust purposes and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; and to endorse, guarantee, or
undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To adopt By-laws not inconsistent with this Declaration providing for
the conduct of the business of the Trust and to amend and repeal them to the
extent such right is not reserved to the Shareholders.
(i) To elect and remove such officers and appoint and terminate such agents
as they deem appropriate.
(j) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the By-laws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such.
(k) To retain one or more transfer agents and shareholder servicing agents,
or both.
(l) To provide for the distribution of Shares either through a Principal
Underwriter as provided herein or by the Trust itself, or both, or pursuant to a
distribution plan of any kind.
(m) To set record dates in the manner provided for herein or in the By-
laws.
(n) To delegate such authority as they consider desirable to any officers
of the Trust and to any agent, independent contractor, manager, investment
adviser, custodian or underwriter.
(o) To hold any security or other property (i) in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form, or
5
<PAGE>
(ii) either in the Trust's or Trustees' own name or in the name of a custodian
or a nominee or nominees, subject to safeguards according to the usual practice
of business trusts or investment companies.
(p) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article V.
(q) To the full extent permitted by Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series
and assets, liabilities and expenses to a particular Class or to apportion the
same between or among two or more Series or Classes, provided that any
liabilities or expenses incurred by a particular Series or Class shall be
payable solely out of the assets belonging to that Series or Class as provided
for in Article V, Section 4.
(r) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust.
(s) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes.
(t) To make distributions of income, capital gains, returns of capital (if
any) and redemption proceeds to Shareholders in the manner hereinafter provided
for.
(u) To establish committees for such purposes, with such membership, and
with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened.
(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles V and VI, to apply to any such repurchase,
redemption, retirement,
6
<PAGE>
cancellation or acquisition of Shares any funds or property of the Trust or of
the particular Series with respect to which such Shares are issued.
(w) To invest part or all of the Trust Property (or part or all of the
assets of any Series), or to dispose of part or all of the Trust Property (or
part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act all without any requirement of approval by
Shareholders. Any such other investment company may (but need not) be a trust
(formed under the laws of the State of Delaware or of any other state) which is
classified as a partnership for federal income tax purposes.
(x) To carry on any other business in connection with or incidental to any
of the foregoing powers, to do everything necessary or desirable to accomplish
any purpose or to further any of the foregoing powers, and to take every other
action incidental to the foregoing business or purposes, objects or powers.
(y) To sell or exchange any or all of the assets of the Trust, subject to
Article IX, Section 4.
(z) To enter into joint ventures, partnerships and other combinations and
associations.
(aa) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such Committee, depositary or trustee as the Trustees shall deem
proper;
(bb) To purchase and pay for entirely out of Trust Property such insurance
as the Trustees may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust or payment of distributions and principal on its portfolio
investments, and, subject to applicable law and any restrictions set forth in
the By-laws, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, Principal Underwriters, or independent
contractors of the Trust, individually, against all claims and liabilities of
every nature arising by reason of holding Shares, holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such Person as Trustee, officer, employee, agent,
investment adviser, Principal Underwriter, or independent contractor, including
any
7
<PAGE>
action taken or omitted that may be determined to constitute negligence, whether
or not the Trust would have the power to indemnify such Person against
liability;
(cc) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;
(dd) To enter into contracts of any kind and description;
(ee) To interpret the investment policies, practices or limitations of any
Series or Class; and
(ff) To guarantee indebtedness and contractual obligations of others.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
Section 3. Certain Transactions. Except as prohibited by applicable law,
--------------------
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust to, any Trustee or officer of the
Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such
person is an Interested Person, as broker, legal counsel, registrar, investment
adviser, administrator, distributor, transfer agent, dividend disbursing agent,
custodian or in any other capacity upon customary terms.
Section 4. Initial Trustees; Election and Number of Trustees. The initial
-------------------------------------------------
Trustee shall be the person initially signing this Declaration. The number of
Trustees (other than the initial Trustee) shall be fixed from time to time by a
majority of the Trustees; provided, that there shall be at least one (1)
Trustee. The Shareholders shall elect the Trustees (other than the initial
Trustee) on such dates as the Trustees may fix from time to time.
8
<PAGE>
Section 5. Term of Office of Trustees. Each Trustee shall hold office
--------------------------
for life or until his successor is elected or the Trust terminates; except that
(a) any Trustee may resign by delivering to the other Trustees or to any Trust
officer a written resignation effective upon such delivery or a later date
specified therein; (b) any Trustee may be removed with or without cause at any
time by a written instrument signed by at least a majority of the then Trustees,
specifying the effective date of removal; (c) any Trustee who requests to be
retired, or who is declared bankrupt or has become physically or mentally
incapacitated or is otherwise unable to serve, may be retired by a written
instrument signed by a majority of the other Trustees, specifying the effective
date of retirement; and (d) any Trustee may be removed at any meeting of the
Shareholders by a vote of at least two-thirds of the Outstanding Shares.
Section 6. Vacancies; Appointment of Trustees. Whenever a vacancy shall
----------------------------------
exist in the Board of Trustees, regardless of the reason for such vacancy, the
remaining Trustees shall appoint any person as they determine in their sole
discretion to fill that vacancy, consistent with the limitations under the 1940
Act. Such appointment shall be made by a written instrument signed by a
majority of the Trustees or by a resolution of the Trustees, duly adopted and
recorded in the records of the Trust, specifying the effective date of the
appointment. The Trustees may appoint a new Trustee as provided above in
anticipation of a vacancy expected to occur because of the retirement,
resignation or removal of a Trustee, or an increase in the number of Trustees,
provided that such appointment shall become effective only at or after the
expected vacancy occurs. As soon as any such Trustee has accepted his
appointment, the trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder. Whenever a vacancy in the number of Trustees shall
occur, until such vacancy is filled as provided in this Article II, the Trustees
in office, regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by the
Declaration.
Section 7. Temporary Vacancy or Absence. Whenever a vacancy in the Board
----------------------------
of Trustees shall occur, until such vacancy is filled, or while any Trustee is
absent from his domicile (unless that Trustee has made arrangements to be
informed about, and to participate in, the affairs of the Trust during such
absence), or is physically or mentally incapacitated, the remaining Trustees
shall have all the powers hereunder and their certificate as to such vacancy,
absence, or incapacity shall be conclusive. Any Trustee may, by power of
attorney, delegate his powers as Trustee for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees.
Section 8. Chairman. The Trustees shall appoint one of their number to
--------
be Chairman of the Board of Trustees. The Chairman shall preside at all
meetings of the Trustees, shall be responsible for the execution of policies
established by the Trustees
9
<PAGE>
and the administration of the Trust, and may be the chief executive, financial
and/or accounting officer of the Trust.
Section 9. Action by the Trustees. The Trustees shall act by majority
----------------------
vote at a meeting duly called at which a quorum is present, including a meeting
held by conference telephone, teleconference or other electronic media or
communication equipment by means of which all persons participating in the
meeting can communicate with each other; or by written consent of a majority of
Trustees (or such greater number as may be required by applicable law) without a
meeting. A majority of the Trustees shall constitute a quorum at any meeting.
Meetings of the Trustees may be called orally or in writing by the President or
by any one of the Trustees. Notice of the time, date and place of all Trustees'
meetings shall be given to each Trustee as set forth in the By-laws; provided,
however, that no notice is required if the Trustees provide for regular or
stated meetings. Notice need not be given to any Trustee who attends the
meeting without objecting to the lack of notice or who signs a waiver of notice
either before or after the meeting. The Trustees by majority vote may delegate
to any Trustee or Trustees or committee authority to approve particular matters
or take particular actions on behalf of the Trust. Any written consent or
waiver may be provided and delivered to the Trust by facsimile or other similar
electronic mechanism.
Section 10. Ownership of Trust Property. The Trust Property of the Trust
---------------------------
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in and beneficial ownership of all of
the assets of the Trust shall at all times be considered as vested in the Trust,
except that the Trustees may cause legal title in and beneficial ownership of
any Trust Property to be held by, or in the name of one or more of the Trustees
acting for and on behalf of the Trust, or in the name of any person as nominee
acting for and on behalf of the Trust. No Shareholder shall be deemed to have a
severable ownership in any individual asset of the Trust or of any Series or any
right of partition or possession thereof, but each Shareholder shall have, as
provided in Article V, a proportionate undivided beneficial interest in the
Trust or Series or Class thereof represented by Shares. The Shares shall be
personal property giving only the rights specifically set forth in this Trust
Instrument. The Trust, or at the determination of the Trustees one or more of
the Trustees or a nominee acting for and on behalf of the Trust, shall be deemed
to hold legal title and beneficial ownership of any income earned on securities
of the Trust issued by any business entities formed, organized, or existing
under the laws of any jurisdiction, including the laws of any foreign country.
Upon the incapacity, death, resignation or removal of a Trustee, the Trustee
shall automatically cease to have any right, title or interest in and of the
Trust property. Vesting and conveyance of title
10
<PAGE>
shall be effective whether or not conveyancing documents have been executed and
delivered.
Section 11. Effect of Trustees Not Serving. The death, resignation,
------------------------------
retirement, removal, incapacity or inability or refusal to serve of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration.
Section 12. Trustees, etc. as Shareholders. Subject to any restrictions
------------------------------
in the By-laws, any Trustee, officer, agent or independent contractor of the
Trust may acquire, own and dispose of Shares to the same extent as any other
Shareholder; the Trustees may issue and sell Shares to and buy Shares from any
such person or any firm or company in which such person is interested, subject
only to any general limitations herein.
Section 13. Series Trustees. In connection with the establishment of one
---------------
or more Series or Classes, the Trustees establishing such Series or Class may
appoint, to the extent permitted by the Delaware Act, separate Trustees with
respect to such Series or Classes (the "Series Trustees"). Series Trustees may,
but are not required to, serve as Trustees of the Trust or any other Series or
Class of the Trust. The Series Trustees shall have, to the exclusion of any
other Trustee of the Trust, all the powers and authorities of Trustees hereunder
with respect to such Series or Class, but shall have no power or authority with
respect to any other Series or Class. Any provision of this Declaration
relating to election of Trustees by Shareholders shall entitle only the
Shareholders of a Series or Class for which Series Trustees have been appointed
to vote with respect to the election of such Series Trustees and the
Shareholders of any other Series or Class shall not be entitled to participate
in such vote. In the event that Series Trustees are appointed, the Trustees
initially appointing such Series Trustees shall, without the approval of any
Outstanding Shares, amend either the Declaration or the By-laws to provide for
the respective responsibilities of the Trustees and the Series Trustees in
circumstances where an action of the Trustees or Series Trustees affects all
Series of the Trust or two or more Series represented by different Trustees.
11
<PAGE>
ARTICLE III
-----------
CONTRACTS WITH SERVICE PROVIDERS
--------------------------------
Section 1. Underwriting Contract. The Trustees may in their
---------------------
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of the Shares whereby
the Trustees may either agree to sell the Shares to the other party to the
contract or appoint such other party as their sales agent for the Shares, and in
either case on such terms and conditions, if any, as may be prescribed in the
By-laws, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article III or
of the By-laws; and such contract may also provide for the repurchase of the
Shares by such other party as agent of the Trustees.
Section 2. Advisory or Management Contract. The Trustees may in
-------------------------------
their discretion from time to time enter into one or more investment advisory or
management contracts or, if the Trustees establish multiple Series, separate
investment advisory or management contracts with respect to one or more Series
whereby the other party or parties to any such contracts shall undertake to
furnish the Trust or such Series management, investment advisory,
administration, accounting, legal, statistical and research facilities and
services, promotional or marketing activities, and such other facilities and
services, if any, as the Trustees shall from time to time consider desirable and
all upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of the Declaration, the Trustees may
authorize the Investment Advisers or persons to whom the Investment Advisers
delegate certain or all of their duties, or any of them, under any such
contracts (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities and other investments of the Trust on behalf of the
Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of such
Investment Advisers, or any of them (and all without further action by the
Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees.
Section 3. Administration Agreement. The Trustees may in their
------------------------
discretion from time to time enter into an administration agreement or, if the
Trustees establish multiple Series or Classes, separate administration
agreements with respect to each Series or Class, whereby the other party to such
agreement shall undertake to manage the business affairs of the Trust or of a
Series or Class thereof of the Trust and furnish the Trust or a Series or a
Class thereof with office facilities, and shall be responsible for the ordinary
clerical, bookkeeping and recordkeeping services at such
12
<PAGE>
office facilities, and other facilities and services, if any, and all upon such
terms and conditions as the Trustees may in their discretion determine.
Section 4. Service Agreement. The Trustees may in their discretion
-----------------
from time to time enter into service agreements with respect to one or more
Series or Classes of Shares whereby the other parties to such Service Agreements
will provide administration and/or support services pursuant to administration
plans and service plans, and all upon such terms and conditions as the Trustees
in their discretion may determine.
Section 5. Transfer Agent. The Trustees may in their discretion from
--------------
time to time enter into a transfer agency and shareholder services contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
Section 6. Custodian. The Trustees may appoint or otherwise engage
---------
one or more banks or trust companies, each having aggregate capital, surplus and
undivided profits (as shown in its last published report) of at least two
million dollars ($2,000,000), or any other entity satisfying the requirements of
the 1940 Act, to serve as Custodian with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in the By-laws of the Trust. The Trustees may also authorize the
Custodian to employ one or more sub-custodians as meet the requirements of
applicable provisions of the 1940 Act, and upon such terms and conditions as may
be agreed upon between the Custodian and such sub-custodian, to hold securities
and other assets of the Trust and to perform the acts and services of the
Custodian, subject to applicable provisions of law and resolutions adopted by
the Trustees. The Trustees may delegate to the Trust's officers, Investment
Adviser, Custodian or a Qualified Foreign Bank the responsibility to select
Eligible Foreign Custodians in accordance with the provisions of the 1940 Act or
any rule, regulation or order of the Commission thereunder.
Section 7. Affiliations of Trustees or Officers, Etc. The fact that
-----------------------------------------
(i) any of the Shareholders, Trustees or officers of the
Trust or any Series thereof is a shareholder, director, officer,
partner, trustee, employee, manager, adviser or distributor of or for
any partnership, corporation, trust, association or other organization
or of or for any parent or affiliate of any organization, with which a
contract of the character described in this Article III or for
services as Custodian, Transfer Agent or disbursing agent or for
related services may have been or may hereafter be made, or that any
such
13
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organization, or any parent or affiliate thereof, is a Shareholder of
or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in
Sections 1, 2, 3 or 4 of this Article III or for services as
Custodian, Transfer Agent or disbursing agent or for related services
may have been or may hereafter be made also has any one or more of
such contracts with one or more other partnerships, corporations,
trusts, associations or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE IV
----------
COMPENSATION, LIMITATION OF LIABILITY AND INDEMNIFICATION
---------------------------------------------------------
Section 1. Compensation. The Trustees as such shall be entitled to
------------
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. All persons contracting with or
-----------------------
having any claim against the Trust or a particular Series shall look only to the
assets of all Series or such particular Series for payment under such contract
or claim; and neither the Trustees nor, when acting in such capacity, any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Every written instrument or obligation on behalf of
the Trust or any Series shall contain a statement to the foregoing effect, but
the absence of such statement shall not operate to make any Trustee or officer
of the Trust liable thereunder. Provided they have exercised reasonable care
and have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees and officers of the Trust shall not be
responsible or liable for any act or omission or for neglect or wrongdoing of
them or any officer, agent, employee, Investment Adviser or independent
contractor of the Trust, but nothing contained in this Declaration or in the
Delaware Act shall protect any Trustee or officer of the Trust against liability
to the Trust or to Shareholders to which he would otherwise be subject by reason
of willful
14
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misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 3. Indemnification. (a) Subject to the exceptions and
---------------
limitations contained in subsection (b) below:
(i) every person who is, or has been, a Trustee or an officer,
employee or agent of the Trust (including any individual who serves at
its request as director, officer, partner, trustee or the like of
another organization in which it has any interest as a shareholder,
creditor or otherwise) ("Covered Person") shall be indemnified by the
Trust or the appropriate Series to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Covered Person and against amounts paid or
incurred by him in the settlement thereof; and
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office, or (B) not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office; (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); (C) by written opinion of
independent legal
15
<PAGE>
counsel based upon a review of readily available facts (as opposed to
a full trial-type inquiry) or (D) by a vote of a majority of the
Outstanding Shares entitled to vote (excluding any Outstanding Shares
owned of record or beneficially by such individual).
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(d) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him to the Trust or
applicable Series if it is ultimately determined that he is not entitled to
indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section.
(e) Any repeal or modification of this Article IV by the Shareholders,
or adoption or modification of any other provision of the Declaration or By-laws
that would be inconsistent with this Article, shall be prospective only, to the
extent that such repeal, or modification would, if applied retrospectively,
adversely affect any limitation on the liability of any Covered Person or
indemnification available to any Covered Person with respect to any act or
omission which occurred prior to such repeal, modification or adoption.
Section 4. Indemnification of Shareholders. If any Shareholder or
-------------------------------
former Shareholder of any Series shall be held personally liable solely by
reason of his being or having been a Shareholder and not because of his acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his heirs, executors, administrators or other legal representatives or in the
case of any entity, its general successor) shall be entitled out of the assets
belonging to the applicable Series to be held harmless from and indemnified
against all loss and expense arising from such
16
<PAGE>
liability. The Trust, on behalf of the affected Series, shall, upon request by
such Shareholder, assume the defense of any claim made against such Shareholder
for any act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series.
Section 5. No Bond Required of Trustees. No Trustee shall be obligated to
----------------------------
give any bond or other security for the performance of any of
his duties hereunder.
Section 6. No Duty of Investigation; Notice in Trust Instruments, Etc. No
----------------------------------------------------------
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust or a Series thereof shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 7. Reliance on Experts, Etc. Each Trustee, officer or employee of
------------------------
the Trust or a Series thereof shall, in the performance of his duties, powers
and discretion hereunder be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust or a Series thereof,
upon an opinion of counsel, or upon reports made to the Trust or a Series
thereof by any of its officers or employees or by the Investment Adviser, the
Administrator, the Distributor, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with
17
<PAGE>
reasonable care by the Trustees, officers or employees of the Trust, regardless
of whether such counsel or expert may also be a Trustee.
ARTICLE V
---------
SERIES; CLASSES; SHARES
-----------------------
Section 1. Establishment of Series or Class. The Trust shall consist
--------------------------------
of one or more Series. Without limiting the authority of the Trustees to
establish and designate any further Series, the Trustees hereby establish three
Series which shall be designated as Sun Capital Real Estate Fund, Sun Capital
Investment Grade Bond Fund and Sun Capital Money Market Fund. The preferences,
voting powers, rights and privileges of such Series and any classes thereof
shall be as set forth in the Trust's registration statement or statements as
filed with the Commission, as from time to time in effect. Each additional
Series shall be established and is effective upon the adoption of a resolution
of a majority of the Trustees or any alternative date specified in such
resolution. The Trustees shall designate the relative rights and preferences of
the Shares of each Series. The Trustees may divide the Shares of any Series into
Classes. Any Shares of any further Series and Classes that may from time to time
be established and designated by the Trustees shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series or Classes shall be fixed and determined, by the Trustees;
provided, that all Shares shall be identical except for such variations as shall
be fixed and determined between different Series or Classes by the Trustees in
establishing and designating such Series or Class. Such designation may be
directly set forth by resolution or may be made a resolution referring to, or
authorizing or approving of, another document that sets forth such relative
rights and preferences of such Series (or Class) including, without limitation,
any registration statement of the Trust, or as otherwise provided in such
resolution.
All references to Shares in this Declaration shall be deemed to be
Shares of any or all Series or Classes as the context may require. The Trust
shall maintain separate and distinct records for each Series and hold and
account for the assets thereof separately from the other assets of the Trust or
of any other Series. A Series may issue any number of Shares or any Class
thereof and need not issue Shares. Each Share of a Series shall represent an
equal beneficial interest in the net assets of such Series. Each holder of
Shares of a Series or a Class thereof shall be entitled to receive his pro rata
share of all distributions made with respect to such Series or Class. Upon
redemption of his Shares, such Shareholder shall be paid solely out of the funds
and property of such Series. The Trustees may adopt and change the name of any
Series or Class.
Section 2. Shares. The beneficial interest in the Trust shall be
------
divided into transferable Shares of one or more separate and distinct Series or
Classes established by the Trustees. The number of Shares of each Series and
Class is unlimited and each Share shall have no par value per Share or such
other amount as the Trustees may establish. All Shares issued hereunder shall be
fully paid and nonassessable. Shareholders shall have no preemptive or other
right to subscribe to any additional
18
<PAGE>
Shares or other securities issued by the Trust. The Trustees shall have full
power and authority, in their sole discretion and without obtaining Shareholder
approval, to issue original or additional Shares at such times and on such terms
and conditions as they deem appropriate; to issue fractional Shares and Shares
held in the treasury; to establish and to change in any manner Shares of any
Series or Classes with such preferences, terms of conversion, voting powers,
rights and privileges as the Trustees may determine (but the Trustees may not
change Outstanding Shares in a manner materially adverse to the Shareholders of
such Shares); to divide or combine the Shares of any Series or Classes into a
greater or lesser number; to classify or reclassify any unissued Shares of any
Series or Classes into one or more Series or Classes of Shares; to abolish any
one or more Series or Classes of Shares; to issue Shares to acquire other assets
(including assets subject to, and in connection with, the assumption of
liabilities) and businesses; and to take such other action with respect to the
Shares as the Trustees may deem desirable. Shares held in the treasury shall not
confer any voting rights on the Trustees and shall not be entitled to any
dividends or other distributions declared with respect to the Shares.
Section 3. Investment in the Trust. The Trustees shall accept
-----------------------
investments in any Series or Class from such persons and on such terms as they
may from time to time authorize. At the Trustees' discretion, such investments,
subject to applicable law, may be in the form of cash or securities in which
that Series is authorized to invest, valued as provided in Article VI, Section
3. Investments in a Series shall be credited to each Shareholder's account in
the form of full Shares at the Net Asset Value per Share next determined after
the investment is received or accepted as may be determined by the Trustees;
provided, however, that the Trustees may, in their sole discretion, (a) impose a
sales charge upon investments in any Series or Class, (b) issue fractional
Shares, (c) determine the Net Asset Value per Share of the initial capital
contribution or (d) authorize the issuance of Shares at a price other than Net
Asset Value to the extent permitted by the 1940 Act or any rule, order or
interpretation of the Commission thereunder. The Trustees shall have the right
to refuse to accept investments in any Series at any time without any cause or
reason therefor whatsoever.
Section 4. Assets and Liabilities of Series. All consideration
--------------------------------
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof (including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be), shall be held and accounted for separately from the assets of
every other Series and are referred to as "assets belonging to" that Series. The
assets belonging to a Series shall belong only to that Series for all purposes,
and to no other Series, subject only to the rights of creditors
19
<PAGE>
of that Series. Any assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as belonging to any
particular Series shall be allocated by the Trustees between and among one or
more Series as the Trustees deem fair and equitable. Each such allocation shall
be conclusive and binding upon the Shareholders of all Series for all purposes,
and such assets, earnings, income, profits or funds, or payments and proceeds
thereof shall be referred to as assets belonging to that Series. The assets
belonging to a Series shall be so recorded upon the books of the Trust, and
shall be held by the Trustees in trust for the benefit of the Shareholders of
that Series. The assets belonging to a Series shall be charged with the
liabilities of that Series and all expenses, costs, charges and reserves
attributable to that Series, except that liabilities and expenses allocated
solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees between or among any one or more of the
Series or Classes in such manner as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, and subject to the statutory provision of Section 3804 of
the Delaware Act referred to below, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular Series shall be enforceable against the assets of such Series only,
and not against the assets of the Trust generally or any other Series, and none
of the debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to the Trust generally or any other Series shall
be enforceable against the assets of such Series. Notice of this contractual
limitation on liabilities among Series may, in the Trustees' discretion, be set
forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, with respect to that Series. No Shareholder or former Shareholder of any
Series shall have a claim on or any right to any assets allocated or belonging
to any other Series.
Section 5. Ownership and Transfer of Shares. The Trust or a transfer
--------------------------------
or similar agent for the Trust shall maintain a register containing the names
and addresses of the Shareholders of each Series and Class thereof, the number
of Shares of each Series and Class held by such Shareholders, and a record of
all Share transfers. The register shall be conclusive as to the identity of
Shareholders of record and the number of Shares held by them from time to time.
The Trustees may
20
<PAGE>
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates. Except as otherwise provided
by the Trustees, Shares shall be transferable on the books of the Trust only by
the record holder thereof or by his duly authorized agent upon delivery to the
Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee or
agent of the Trust, shall be affected by any notice of a proposed transfer.
Section 6. Status of Shares; Limitation of Shareholder Liability.
-----------------------------------------------------
Shares shall be deemed to be personal property giving Shareholders only the
rights provided in this Declaration. Every Shareholder, by virtue of having
acquired a Share, shall be held expressly to have assented to and agreed to be
bound by the terms of this Declaration and to have become a party hereto. No
Shareholder shall be personally liable for the debts, liabilities, obligations
and expenses incurred by, contracted for, or otherwise existing with respect to,
the Trust or any Series. The death, incapacity, dissolution, termination or
bankruptcy of a Shareholder during the existence of the Trust shall not operate
to terminate the Trust, nor entitle the representative of any such Shareholder
to an accounting or to take any action in court or elsewhere against the Trust
or the Trustees, but entitles such representative only to the rights of such
Shareholder under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust Property or
right to call for a partition or division of the same or for an accounting, nor
shall the ownership of Shares constitute the Shareholders as partners. Neither
the Trust nor the Trustees shall have any power to bind any Shareholder
personally or to demand payment from any Shareholder for anything, other than as
agreed by the Shareholder. Shareholders shall have the same limitation of
personal liability as is extended to shareholders of a private corporation for
profit incorporated in the State of Delaware. Every written obligation of the
Trust or any Series shall contain a statement to the effect that such obligation
may only be enforced against the assets of the appropriate Series or all Series;
however, the omission of such statement shall not operate to bind or create
personal liability for any Shareholder or Trustee.
21
<PAGE>
ARTICLE VI
----------
DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
Section 1. Distributions. The Trustees or a committee of one or more
-------------
Trustees and one or more officers may declare and pay dividends and other
distributions, including dividends on Shares of a particular Series and other
distributions from the assets belonging to that Series. No dividend or
distribution, including, without limitation, any distribution paid upon
termination of the Trust or of any Series (or Class) with respect to, nor any
redemption or repurchase of, the Shares of any Series (or Class) shall be
effected by the Trust other than from the assets held with respect to such
Series, nor shall any Shareholder of any particular Series otherwise have any
right or claim against the assets held with respect to any other Series except
to the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full discretion to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders. The amount and payment of dividends or distributions and their
form, whether they are in cash, Shares or other Trust Property, shall be
determined by the Trustees. Dividends and other distributions may be paid
pursuant to a standing resolution adopted once or more often as the Trustees
determine. All dividends and other distributions on Shares of a particular
Series shall be distributed pro rata to the Shareholders of that Series in
proportion to the number of Shares of that Series they held on the record date
established for such payment, except that such dividends and distributions shall
appropriately reflect expenses allocated to a particular Class of such Series.
The Trustees may adopt and offer to Shareholders such dividend reinvestment
plans, cash dividend payout plans or similar plans as the Trustees deem
appropriate.
Section 2. Redemptions. Each Shareholder of a Series shall have the
-----------
right at such times as may be permitted by the Trustees to require the Series to
redeem all or any part of his Shares at a redemption price per Share equal to
the Net Asset Value per Share at such time as the Trustees shall have prescribed
by resolution, or, to the extent permitted by the 1940 Act, at such other
redemption price and at such times as the Trustees shall prescribe by
resolution. In the absence of such resolution, the redemption price per Share
shall be the Net Asset Value next determined after receipt by the Series of a
request for redemption in proper form less such charges as are determined by the
Trustees and described in the Trust's Registration Statement for that Series
under the Securities Act of 1933. The Trustees may specify conditions, prices,
and places of redemption, may specify binding requirements for the proper form
or forms of requests for redemption and may specify the amount of any deferred
sales charge to be withheld from redemption proceeds. Payment of the redemption
price may be wholly or partly in securities or other assets at the value of
22
<PAGE>
such securities or assets used in such determination of Net Asset Value, or may
be in cash. Upon redemption, Shares may be reissued from time to time. The
Trustees may require Shareholders to redeem Shares for any reason under terms
set by the Trustees, including, but not limited to, the failure of a Shareholder
to supply a taxpayer identification number if required to do so, or to have the
minimum investment required, or to pay when due for the purchase of Shares
issued to him. To the extent permitted by law, the Trustees may retain the
proceeds of any redemption of Shares required by them for payment of amounts due
and owing by a Shareholder to the Trust or any Series or Class or any
governmental authority. Notwithstanding the foregoing, the Trustees may postpone
payment of the redemption price and may suspend the right of the Shareholders to
require any Series or Class to redeem Shares during any period of time when and
to the extent permissible under the 1940 Act.
Section 3. Determination of Net Asset Value. The Trustees shall
--------------------------------
cause the Net Asset Value of Shares of each Series or Class to be determined
from time to time in a manner consistent with applicable laws and regulations.
The Trustees may delegate the power and duty to determine Net Asset Value per
Share to one or more Trustees or officers of the Trust or to a custodian,
depository or other agent appointed for such purpose. The Net Asset Value of
Shares shall be determined separately for each Series or Class at such times as
may be prescribed by the Trustees or, in the absence of action by the Trustees,
as of the close of regular trading on the New York Stock Exchange on each day
for all or part of which such Exchange is open for unrestricted trading.
Section 4. Suspension of Right of Redemption. If, as referred to in
---------------------------------
Section 2 of this Article, the Trustees postpone payment of the redemption price
and suspend the right of Shareholders to redeem their Shares, such suspension
shall take effect at the time the Trustees shall specify, but not later than the
close of business on the business day next following the declaration of
suspension. Thereafter Shareholders shall have no right of redemption or
payment until the Trustees declare the end of the suspension. If the right of
redemption is suspended, a Shareholder may either withdraw his request for
redemption or receive payment based on the Net Asset Value per Share next
determined after the suspension terminates.
Section 5. Repurchase by Agreement. The Trust may repurchase Shares
-----------------------
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the Net
Asset Value per Share determined as of the time when the purchase or contract of
purchase is made or the Net Asset Value as of any time which may be later
determined, provided payment is not made for the Shares prior to the time as of
which such Net Asset Value is determined.
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<PAGE>
ARTICLE VII
-----------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 1. Voting Powers. The Shareholders shall have power to vote
-------------
only with respect to (a) the election of Trustees as provided in Article II,
Section 4; (b) the removal of Trustees as provided in Article II, Section 5(d);
(c) any investment advisory or management contract entered into pursuant to
Article III, Section 2, unless a shareholder vote is not required pursuant to
the provisions of the 1940 Act or any rule, regulation or order of the
Commission thereunder; (d) any termination of the Trust to the extent and as
provided in Article IX, Section 3; (e) the amendment of this Declaration to the
extent and as provided in Article IX, Section 7; and (f) such additional matters
relating to the Trust as may be required or authorized by law, this Declaration,
or the By-laws or any registration of the Trust with the Commission or as the
Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares
shall be voted by individual Series or Class, except (a) when required by the
1940 Act, Shares shall be voted in the aggregate and not by individual Series or
Class, and (b) when the Trustees have determined that the matter affects the
interests of more than one Series or Class, then the Shareholders of all such
Series or Classes shall be entitled to vote thereon. As determined by the
Trustees without the vote or consent of Shareholders, on any matter submitted to
a vote of Shareholders either (i) each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote or (ii) each dollar of net asset
value (number of Shares owned times net asset value per Share of such Series or
Class, as applicable) shall be entitled to one vote on any matter on which such
Shares are entitled to vote and each fractional dollar amount shall be entitled
to a proportionate fractional vote. Without limiting the power of the Trustees
in any way to designate otherwise in accordance with the preceding sentence, the
Trustees hereby establish that each whole Share shall be entitled to one vote as
to any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy
or in any manner provided for in the By-laws. The By-laws may provide that
proxies may be given by any electronic or telecommunications device or in any
other manner, but if a proposal by anyone other than the officers or Trustees is
submitted to a vote of the Shareholders of any Series or Class, or if there is a
proxy contest or proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees, Shares may be voted only in person or by written
proxy. Until Shares of a Series are issued, as to that Series the Trustees may
exercise all rights of Shareholders and may take any action required or
permitted to be taken by Shareholders by law, this Declaration or
24
<PAGE>
the By-laws. Meetings of Shareholders shall be called and notice thereof and
record dates therefor shall be given and set as provided in the By-laws.
Section 2. Quorum; Required Vote. One-third of the Outstanding
---------------------
Shares of each Series or Class, or one-third of the Outstanding Shares of the
Trust, entitled to vote in person or by proxy shall be a quorum for the
transaction of business at a Shareholders' meeting with respect to such Series
or Class, or with respect to the entire Trust, respectively. Any lesser number
shall be sufficient for adjournments. Any adjourned session of a Shareholders'
meeting may be held within a reasonable time without further notice. Except
when a larger vote is required by law, this Declaration or the By-laws, a
majority of the Outstanding Shares voting at a Shareholders' meeting in person
or by proxy shall decide any matters to be voted upon with respect to the entire
Trust and a plurality of such Outstanding Shares shall elect a Trustee;
provided, that if this Declaration or applicable law permits or requires that
Shares be voted on any matter by individual Series or Classes, then a majority
of the Outstanding Shares of that Series or Class voting at a Shareholders'
meeting in person or by proxy on the matter shall decide that matter insofar as
that Series or Class is concerned. Shareholders may act as to the Trust or any
Series or Class by the written consent of a majority (or such other amount as
may be required by applicable law) of the Outstanding Shares of the Trust or of
such Series or Class, as the case may be.
Section 3. Record Dates.
------------
(a) For the purpose of determining the Shareholders of any
Series (or Class) who are entitled to receive payment of any dividend or of any
other distribution, the Trustees may from time to time fix a date, which shall
be before the date for the payment of such dividend or such other payment, as
the record date for determining the Shareholders of such Series (or Class)
having the right to receive such dividend or distribution. Without fixing a
record date, the Trustees may for distribution purposes close the register or
transfer books for one or more Series (or Classes) any time prior to the payment
of a distribution. Nothing in this Section shall be construed as precluding the
Trustees from setting different record dates for different Series (or Classes).
(b) The Trustees may fix in advance a date up to ninety (90)
days before the date of any Shareholders' meeting, or the date for the allotment
of rights, or the date when any change or conversion or exchange of Shares shall
go into effect as a record date for the determination of the Shareholders
entitled to notice of, and to vote at, any such meeting, or to receive any such
allotment of rights, or to exercise such rights in respect of any such change,
conversion or exchange of Shares.
25
<PAGE>
Section 4. Additional Provisions. The By-laws may include further
---------------------
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VIII
------------
EXPENSES OF THE TRUST AND SERIES
--------------------------------
Section 1. Payment of Expenses by the Trust. Subject to Article V,
--------------------------------
Section 4, the Trust or a particular Series shall pay, or shall reimburse the
Trustees from the assets belonging to all Series or the particular Series, for
their expenses (or the expenses of a Class of such Series) and disbursements,
including, but not limited to, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; certain
insurance premiums; applicable fees, interest charges and expenses of third
parties, including the Trust's investment advisers, managers, administrators,
distributors, custodians, transfer agents, fund accountants; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and its
Series and maintaining its existence; costs of preparing and printing the
prospectuses of the Trust and each Series, statements of additional information
and Shareholder reports and delivering them to Shareholders; expenses of
meetings of Shareholders and proxy solicitations therefor; costs of maintaining
books and accounts; costs of reproduction, stationery and supplies; fees and
expenses of the Trustees; compensation of the Trust's officers and employees and
costs of other personnel performing services for the Trust or any Series; costs
of Trustee meetings; Commission registration fees and related expenses; state or
foreign securities laws registration and notice fees and related expenses; and
for such non-recurring items as may arise, including litigation to which the
Trust or a Series (or a Trustee or officer of the Trust acting as such) is a
party, and for all losses and liabilities by them incurred in administering the
Trust. The Trustees shall have a lien on the assets belonging to the
appropriate Series, or in the case of an expense allocable to more than one
Series, on the assets of each such Series, prior to any rights or interests of
the Shareholders thereto, for the reimbursement to them of such expenses,
disbursements, losses and liabilities.
Section 2. Payment of Expenses by Shareholders. The Trustees shall
-----------------------------------
have the power, as frequently as they may determine, to cause each Shareholder,
or each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder
26
<PAGE>
and/or by reducing the number of Shares in the account of such Shareholder by
that number of full and/or fractional Shares which represents the outstanding
amount of such charges due from such Shareholder.
ARTICLE IX
----------
MISCELLANEOUS
-------------
Section 1. Trust Not a Partnership. This Declaration creates a trust
-----------------------
and not a partnership. No Trustee shall have any power to bind personally
either the Trust's officers or any Shareholder.
Section 2. Trustee Action. The exercise by the Trustees of their
--------------
powers and discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested.
Subject to the provisions of Article IV, the Trustees shall not be liable for
errors of judgment or mistakes of fact or law.
Section 3. Termination of the Trust. (a) This Trust shall have
------------------------
perpetual existence. Subject to the vote of a majority of the Outstanding
Shares of the Trust or of each Series to be affected voting at a Shareholders'
meeting in person or by proxy, the Trustees may
(i) sell and convey all or substantially all of the assets
of all Series or any affected Series to another Series or to
another entity which is an open-end investment company as
defined in the 1940 Act, or is a series thereof, for adequate
consideration, which may include the assumption of all
outstanding obligations, taxes and other liabilities, accrued
or contingent, of the Trust or any affected Series, and which
may include shares of or interests in such Series, entity, or
series thereof; or
(ii) at any time sell and convert into money all or
substantially all of the assets of all Series or any affected
Series.
Upon making reasonable provision for the payment of all known liabilities of all
Series or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the Shareholders of all Series or any affected
Series; however, the payment to any particular Class of such Series may be
reduced by any fees, expenses or charges allocated to that Class.
27
<PAGE>
(b) The Trustees may take any of the actions specified in subsection
(a) (i) and (ii) above without obtaining the vote of a majority of the
Outstanding Shares of the Trust or any Series voting at a Shareholders' meeting
in person or by proxy, if a majority of the Trustees determines that the
continuation of the Trust or Series is not in the best interests of the Trust,
such Series, or their respective Shareholders as a result of factors or events
adversely affecting the ability of the Trust or such Series to conduct its
business and operations in an economically viable manner. Such factors and
events may include the inability of the Trust or a Series to maintain its assets
at an appropriate size, changes in laws or regulations governing the Trust or
the Series or affecting assets of the type in which the Trust or Series invests,
or economic developments or trends having a significant adverse impact on the
business or operations of the Trust or such Series.
(c) Upon completion of the distribution of the remaining proceeds or
assets pursuant to subsection (a), the Trustees and the Trust or affected Series
shall be discharged of any and all further liabilities and duties hereunder with
respect thereto and the right, title and interest of all parties therein shall
be canceled and discharged and any such Series shall terminate. Following
completion of winding up of its business, the Trustees shall cause a certificate
of cancellation of the Trust's certificate of trust to be filed in accordance
with the Delaware Act, which certificate of cancellation may be signed by any
one Trustee, and upon the filing of such certificate of cancellation, the Trust
shall terminate.
Section 4. Reorganization. (a) Notwithstanding anything else
--------------
herein, to change the Trust's form or place of organization the Trustees may,
without Shareholder approval (unless such approval is required by applicable
law), (i) cause the Trust to merge or consolidate with or into one or more
entities, if the surviving or resulting entity is the Trust or another open-end
management investment company under the 1940 Act, or a series thereof, that will
succeed to or assume the Trust's registration under the 1940 Act, (ii) cause the
Shares to be exchanged under or pursuant to any state or federal statute to the
extent permitted by law, or (iii) cause the Trust to incorporate under the laws
of Delaware or any other U.S. jurisdiction. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
(b) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, an agreement of merger or consolidation approved by
the Trustees in accordance with this Section 4 may effect any amendment to the
Declaration or effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or consolidation.
28
<PAGE>
(c) The Trustees may create one or more business trusts to which all
or any part of the assets, liabilities, profits or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion of
Shares in the Trust or any Series or Class thereof into beneficial interests in
any such newly created trust or trusts or any series or classes thereof.
Section 5. Declaration of Trust. The original or a copy of this
--------------------
Declaration of Trust and of each amendment hereto or Declaration of Trust
supplemental shall be kept at the office of the Trust where it may be inspected
by any Shareholder. Anyone dealing with the Trust may rely on a certificate by a
Trustee or an officer of the Trust as to the authenticity of the Declaration of
Trust or any such amendments or supplements and as to any matters in connection
with the Trust. The masculine gender herein shall include the feminine and
neuter genders. Headings herein are for convenience only and shall not affect
the construction of this Declaration of Trust. This Declaration of Trust may be
executed in any number of counterparts, each of which shall be deemed an
original.
Section 6. Applicable Law. This Declaration and the Trust created
--------------
hereunder are governed by and construed and administered according to the
Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Declaration of Trust (a) the provisions of Section 3540 of Title 12 of the
Delaware Code, or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts which
relate to or regulate (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and charges, (ii)
affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Declaration. The Trust shall be of the type commonly called a Delaware
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power,
29
<PAGE>
privilege or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
Section 7. Amendments. The Trustees may, without any Shareholder
----------
vote, amend or otherwise supplement this Declaration by making an amendment, a
Declaration of Trust supplemental hereto or an amended and restated trust
instrument; provided, that Shareholders shall have the right to vote on any
amendment (a) which would affect the voting rights of Shareholders granted in
Article VII, Section 1, (b) to this Section 7, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, and (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series shall be authorized by vote of the Shareholders
of such Series and no vote shall be required of Shareholders of a Series not
affected. Notwithstanding anything else herein, (i) any amendment to Article IV
which would have the effect of reducing the indemnification or other rights
provided thereby to Trustees, officers, employees, and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence shall each require the affirmative vote of the holders of two-thirds of
the Outstanding Shares of the Trust entitled to vote thereon and (ii) no
amendment to Article IV that would have the effect of reducing the
indemnification or other rights provided thereby to Trustees, officers,
employees, and agents of the Trust or to Shareholders or former Shareholders
shall be effective with respect to any acts or omissions of any such Persons
occurring or otherwise relating to any time period prior to the adoption of such
amendment or shall otherwise have any retroactive effect.
Section 8. Derivative Actions. In addition to the requirements set
------------------
forth in Section 3816 of the Delaware Act, a Shareholder may bring a derivative
action on behalf of the Trust only if the following conditions are met:
(a) Shareholders eligible to bring such derivative action under the
Delaware Act who hold at least 10% of the Outstanding Shares of the Trust, or
10% of the Outstanding Shares of the Series or Class to which such action
relates, shall join in the request for the Trustees to commence such action;
(b) the Trustees must be afforded a reasonable amount of time to
consider such Shareholder request and to investigate the basis of such claim.
The Trustees shall be entitled to retain counsel or other advisers in
considering the merits of the request and shall require an undertaking by the
Shareholders making such request to reimburse the Trust for the expense of any
such advisers in the event that the Trustees determine not to bring such action;
and
(c) Shareholders are not relieved of the conditions in Sections 8(a)
and (b) if a Trustee who is not an Interested Person of the Trust or any Series
serves as a trustee of any other investment company in the Fund Complex.
30
<PAGE>
Section 9. Fiscal Year. The fiscal year of the Trust shall end on a
-----------
specified date as adopted by resolution of the Trustees. The taxable year of
each Series of the Trust shall be as determined by the Trustees from time to
time.
Section 10. Severability. The provisions of this Declaration are
------------
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination. If any
provision hereof shall be held invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall attach only to such provision only in
such jurisdiction and shall not affect any other provision of this Declaration.
31
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the date first written above.
/s/ C. James Prieur
----------------------------------------
C. James Prieur
as Trustee and not individually
Sun Life Assurance Company of Canada
One Sun Life Executive Park
Wellesley Hills, MA 02481
32
<PAGE>
BY-LAWS
OF
SUN CAPITAL ADVISERS TRUST
ARTICLE I
DEFINITIONS
All capitalized terms have the respective meanings given them in the
Agreement and Declaration of Trust of Sun Capital Advisers Trust dated July 13,
1998, as amended or restated from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
----------------------------
office of the Trust shall be in Wellesley, Massachusetts.
Section 2. Other Offices. The Trust may have offices in such other places
--------------------------
without as well as within the State of Delaware as the Trustees may from time to
time determine.
Section 3. Registered Office and Registered Agent. The Board of Trustees
--------------------------------------------------
shall establish a registered office in the State of Delaware and shall appoint
as the Trust's registered agent for service of process in the State of Delaware
an individual resident of the State of Delaware or a Delaware corporation or a
corporation authorized to transact business in the State of Delaware; in each
case the business office of such registered agent for service of process shall
be identical with the registered Delaware office of the Trust.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders of the Trust or a
--------------------
Series or Class thereof shall be held as provided in the Declaration of Trust at
such place within or without the State of Delaware as the Trustees shall
designate. One-third of
<PAGE>
the Outstanding Shares of each Series or Class, or one-third of the Outstanding
Shares of the Trust, entitled to vote in person or by proxy shall be a quorum
for the transaction of business at a Shareholders' meeting with respect to such
Series or Class, or with respect to the entire Trust, respectively. Any lesser
number shall be sufficient for adjournments.
Section 2. Notice of Meetings. Notice of all meetings of the
------------------------------
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail or telegraphic or electronic means to each
Shareholder at his address as recorded on the register of the Trust mailed at
least (10) days and not more than ninety (90) days before the meeting, provided,
--------
however, that notice of a meeting need not be given to a Shareholder to whom
- -------
such notice need not be given under the proxy rules of the Commission under the
1940 Act and the Securities Exchange Act of 1934, as amended. Only the business
stated in the notice of the meeting shall be considered at such meeting. Any
adjourned meeting may be held as adjourned without further notice. No notice
need be given to any Shareholder who shall have failed to inform the Trust of
his current address or if a written waiver of notice, executed before or after
the meeting by the Shareholder or his attorney thereunto authorized, is filed
with the records of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose
-------------------------------------------------------
of determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determination of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration of Trust.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
-------------------
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken. A
proxy shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission, facsimile,
other electronic means or otherwise) by the Shareholder or the Shareholder's
attorney-in-fact. Proxies may be given by any electronic (including
computerized) or telecommunication device except as otherwise provided in the
Declaration of Trust. The placing of a Shareholder's name on a proxy pursuant to
2
<PAGE>
telephonic or electronically (including by computer) transmitted instructions
pursuant to procedures reasonably designed, as determined by the Trustees, to
verify that such instructions have been authorized by the Shareholder shall
constitute execution of the proxy by or on behalf of the Shareholder. Proxies
may be solicited in the name of one or more Trustees or one or more of the
officers of the Trust. Only Shareholders of record shall be entitled to vote. As
set forth by the Trustees in the Declaration of Trust, on any matter submitted
to a vote of Shareholders either (i) each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to a proportionate fractional vote or (ii) each dollar of net
asset value (number of Shares owned times net asset value per Share of such
Series or Class, as applicable) shall be entitled to one vote on any matter on
which such Shares are entitled to vote and each fractional dollar amount shall
be entitled to a proportionate fractional vote. Without limiting their power to
designate otherwise in accordance with the preceding sentence, the Trustees have
established in the Declaration of Trust that each whole share shall be entitled
to one vote as to any matter on which it is entitled by the Declaration of Trust
to vote and fractional shares shall be entitled to a proportionate fractional
vote. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such share is a
minor or a person of unsound mind, and subject to guardianship or the legal
control of any other person as regards the charge or management of such Share,
he may vote by his guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy.
Section 5. Abstentions and Broker Non-Votes. Outstanding Shares
---------------------------------------------
represented in person or by proxy (including Shares which abstain or do not vote
with respect to one or more of any proposals presented for Shareholder approval)
will be counted for purposes of determining whether a quorum is present at a
meeting. Abstentions will be treated as Shares that are present and entitled to
vote for purposes of determining the number of Shares that are present and
entitled to vote with respect to any particular proposal, but will not be
counted as a vote in favor of such proposal. If a broker or nominee holding
Shares in "street name" indicates on the proxy that it does not have
discretionary authority to vote as to a particular proposal, those Shares will
not be considered as present and entitled to vote with respect to such proposal.
3
<PAGE>
Section 6. Inspection of Records. The records of the Trust shall be open
---------------------------------
to inspection by Shareholders to the same extent as is permitted shareholders of
a Delaware business corporation.
Section 7. Action Without Meeting. Any action which may be taken by
----------------------------------
Shareholders may be taken without a meeting if a majority of Outstanding Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law) consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees and Action by Written Consent. The
------------------------------------------------------
Trustees may in their discretion provide for regular or stated meetings of the
Trustees. Notice of regular or stated meetings need not be given. Meetings of
the Trustees other than regular or stated meetings shall be held whenever called
by the President, the Chairman or by any one of the Trustees, at the time being
in office. Notice of the time and place of each meeting other than regular or
stated meetings shall be given by the Secretary or an Assistant Secretary or by
the officer or Trustee calling the meeting and shall be mailed to each Trustee
at least two days before the meeting, or shall be given by telephone, cable,
wireless, facsimile or other electronic mechanism to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by conference
telephone, teleconference or other electronic media or communication equipment
by means of which all persons participating in the meeting can communicate with
each other and participation by such means shall be deemed to have been held at
a place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if a majority of the Trustees consent to
the action in writing and the written consents are filed with the records of the
Trustees' meetings. Such consents shall be treated as a vote for all purposes.
4
<PAGE>
Section 2. Quorum and Manner of Acting at Meetings. A majority of the
---------------------------------------
Trustees shall be present in person at any regular or special meeting of the
Trustees in order to constitute a quorum for the transaction of business at such
meeting and (except as otherwise required by law, the Declaration of Trust or
these By-laws) the act of a majority of the Trustees present at any such
meeting, at which a quorum is present, shall be the act of the Trustees. In the
absence of a quorum, a majority of the Trustees present may adjourn the meeting
from time to time until a quorum shall be present. Notice of an adjourned
meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
------------------------------------------
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than two (2) members to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session and such
other powers of the Trustees as the Trustees may delegate to them, from time to
time, except those powers which they are by law, the Declaration of Trust or
these By-laws prohibited from delegating. The Trustees may also elect from
their own number other Committees from time to time; the number composing such
Committees, the powers conferred upon the same (subject to the same limitations
as with respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation the
Committee may elect its own Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
-------------------------------------------------
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
5
<PAGE>
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
------------------------------
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise
---------------------------------------------
provided by law, the Declaration of Trust or these By-laws, the President, the
Treasurer, the Secretary and any other officer shall each hold office at the
pleasure of the Board of Trustees or until his successor shall have been duly
elected and qualified. The Secretary and the Treasurer may be the same person.
A Vice President and the Treasurer or a Vice President and the Secretary may be
the same person, but the offices of Vice President, Secretary and Treasurer
shall not be held by the same person. The President shall hold no other office,
however, the President may also serve as Chairman. Except as above provided,
any two offices may be held by the same person. Any officer may be, but none
need be, a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of
-------------------
the Trustees, may remove any officer with or without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or committee may be removed with or without cause by such appointing
officer or committee.
Section 4. Powers and Duties of the Chairman. The Trustees may, but need
---------------------------------------------
not, appoint from among their number a Chairman. When present he shall preside
at the meetings of the Shareholders and of the Trustees. He may call meetings
of the Trustees and of any committee thereof whenever he deems it necessary. He
shall be an executive officer of the Trust and shall have, with the President,
general supervision over the business and policies of the Trust, subject to the
limitations imposed upon the President, as provided in Section 5 of this Article
VI.
6
<PAGE>
Section 5. Powers and Duties of the President. The President shall be the
----------------------------------------------
Chief Executive Officer of the Trust. The President may call meetings of the
Trustees and of any Committee thereof when he deems it necessary and shall
preside at all meetings of the Shareholders in the absence of the Chairman.
Subject to the control of the Trustees and to the control of any Committees of
the Trustees, within their respective spheres, as provided by the Trustees, he
shall at all times exercise a general supervision and direction over the affairs
of the Trust. He shall have the power to employ attorneys and counsel for the
Trust or any Series or Class thereof and to employ such subordinate officers,
agents, clerks and employees as he may find necessary to transact the business
of the Trust or any Series or Class thereof. He shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust or any Series thereof. The President shall have such
other powers and duties, as from time to time may be conferred upon or assigned
to him by the Trustees.
Section 6. Powers and Duties of Vice Presidents. In the absence or
------------------------------------------------
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees, shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
----------------------------------------------
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust or any Series or Class thereof which may come into his hands
to such Custodian as the Trustees may employ. He shall render a statement of
condition of the finances of the Trust or any Series or Class thereof to the
Trustees as often as they shall require the same and he shall in general perform
all the duties incident to the office of a Treasurer and such other duties as
from time to time may be assigned to him by the Trustees. The Treasurer shall
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 8. Powers and Duties of the Secretary. The Secretary shall keep
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the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he shall have custody of the seal of the Trust;
he shall have charge of the Share transfer books, lists and records unless the
same are in the charge of a transfer agent. He shall attend to the giving and
serving of all notices by the Trust in accordance with the provisions of these
By-laws and as required by law; and subject to these By-laws, he shall in
general perform all duties incident to the
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office of Secretary and such other duties as from time to time may be assigned
to him by the Trustees.
Section 9. Powers and Duties of Assistant Treasurers. In the absence or
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disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to do
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
Section 10. Powers and Duties of Assistant Secretaries. In the absence or
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disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees and the President.
Section 11. Compensation of Officers and Trustees and Members of the
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Advisory Board. Subject to any applicable provisions of the Declaration of
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Trust, the compensation of the officers and Trustees and members of an advisory
board shall be fixed from time to time by the Trustees or, in the case of
officers, by any Committee or officer upon whom such power may be conferred by
the Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall end on a specified date as adopted by
resolution of the Trustees. The taxable year of each Series of the Trust shall
be as determined by the Trustees from time to time.
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ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been sent by mail, telegraph, cable, wireless, facsimile or other
electronic means for the purposes of these By-laws when it has been delivered to
a representative of any company holding itself out as capable of sending notice
by such means with instructions that it be so sent.
ARTICLE X
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or
new By-laws may be adopted by (a) vote of a majority of the Outstanding Shares
voting in person or by proxy at a meeting of Shareholders and entitled to vote
or (b) by the Trustees; provided, however, that no By-law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration of Trust or these By-laws, a vote of
the Shareholders.
END OF BY-LAWS
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