<PAGE>
No. 333-59093
811-08879
As filed with the Securities and Exchange Commission on August 27, 1999
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. [3]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [4]
(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:
Christopher P. Harvey, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
It is proposed that this filing will become effective (check appropriate box):
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<C> <S>
X immediately upon filing pursuant to paragraph (b)
----
on [date] pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(1)
----
on [date] pursuant to paragraph (a)(1)
----
75 days after filing pursuant to paragraph (a)(2)
----
on [date] pursuant to paragraph (a)(2) of Rule 485
----
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
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[Logo of Sun Capital Advisers Trust Appears Here]
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Investors Foundation Fund
Sun Capital Select Equity Fund
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Real Estate Fund
Prospectus
September 1, 1999
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.
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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<TABLE>
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The Funds' Goals and Strategies............................................. 1
Money Market Fund........................................................ 1
Investment Grade Bond Fund............................................... 2
Investors Foundation Fund................................................ 3
Select Equity Fund....................................................... 4
Blue Chip Mid Cap Fund................................................... 5
Real Estate Fund........................................................ 6
More About the Funds' Investments .......................................... 7
Investment Grade Bond Fund............................................... 7
Investors Foundation Fund................................................ 7
Select Equity Fund....................................................... 7
Blue Chip Mid Cap Fund................................................... 7
Real Estate Fund......................................................... 8
Investment Grade Bond Fund, Investors Foundation Fund, Real Estate Fund.. 8
All Funds................................................................ 9
The Investment Adviser and Subadviser....................................... 10
About the Adviser........................................................ 10
About the Subadviser..................................................... 10
Wellington Management's Prior Performance for Similar Accounts........... 11
Portfolio Managers....................................................... 13
Purchase and Redemption Information......................................... 14
Buying and Redeeming Shares.............................................. 14
Automatic Transactions................................................... 14
Valuation of Shares...................................................... 14
Dividends and Distributions.............................................. 14
Taxes.................................................................... 14
Fund Details................................................................ 15
Financial Highlights ....................................................... 16
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An investment in any of the funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Although Money Market 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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The Funds' Goals And Strategies
. Money Market Fund
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Investment Maximizing current income, consistent with maintaining liquidity
goals and preserving capital. The fund's board may change these goals
without obtaining the approval of the fund's shareholders.
Key The fund invests exclusively in high quality U.S. dollar-
investmentsdenominated money market securities, including those issued by:
and
strategies
. 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
quality categories or equivalent quality for unrated securities.
Maximum Average dollar weighted portfolio maturity of 90 days or less.
maturity Maturity of 397 days or less for individual securities.
How The adviser selects for the fund's portfolio those securities that
investmentsappear to offer the best relative value based on an analysis of
are their credit quality, interest rate sensitivity, yields and
selected prices. To take advantage of changing yield differentials, the
fund may overweight securities in particular sectors of the short
term debt market while maintaining overall issuer and sector
diversification.
Principal The fund might not be able to maintain a $1 share price, investors
risks of could lose money and the fund could underperform other money
investing market funds if any of these events occurs:
in 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 The fund may be appropriate for investors who:
want to
invest . seek liquidity and stability of principal
. want 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
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The Funds' Goals And Strategies
. Investment Grade Bond Fund
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Investment High current income consistent with relative stability of
goals principal. The fund's board may change these goals without
obtaining the approval of the fund's shareholders.
Key The fund invests primarily in investment grade bonds, including
investmentsthose issued by:
and . U.S. and foreign companies, including companies in emerging
strategies 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 At least 80% of its assets in investment grade securities. Up to
quality 20% of its assets in high yield or junk bonds rated at least B by
one rating agency or unrated bonds of equivalent quality.
Duration Portfolio duration range generally of 3 1/2 to 6 years. (Duration
target is a measure of interest rate sensitivity.) There is no limit on
the maturity or duration of individual securities.
How The adviser selects investments for the fund's portfolio by:
investments. Analyzing the credit quality, yield and investment risk of
are individual securities in order to estimate their relative value
selected 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 Investors could lose money on their investments in the fund or the
risks of fund could perform less well than other possible investments if
investing any of the following occurs:
in the . Interest rates go up, which will make bond prices go down and
fund 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 The fund may be appropriate for investors who:
want to . want higher potential returns than a money market fund and are
invest willing to accept more risk of price volatility
. are seeking 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
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The Funds' Goals And Strategies
. Investors Foundation Fund
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Investment Long-term capital growth. The fund's board may change this goal
goal without obtaining the approval of the fund's shareholders.
Key The fund invests primarily in a diversified portfolio of common
investmentsstocks and other equity securities of U.S. companies. The fund
and generally holds stocks of companies with market capitalizations
strategies within the range represented by the Standard & Poor's (S&P) 500
Index.
The fund is broadly diversified by industry and company. The fund
How is managed to have an overall risk profile over the long term
investmentssimilar to that of the S&P 500 Index. The fund does not, however,
are seek to replicate the S&P 500 Index. From time to time the fund's
selected portfolio composition may diverge significantly from the S&P 500
Index by style, market capitalization and industry focus. The fund
owns fewer securities than the S&P 500 Index and takes positions
in securities that are not in the S&P 500 Index.
The fund's investment subadviser, Wellington Management Company,
LLP (Wellington Management), selects investments for the fund
using a combination of fundamental analysis and quantitative
tools.
. Wellington Management first uses fundamental analysis to
evaluate a security for purchase or sale by the fund.
Fundamental analysis involves the assessment of a company's
business environment, management, balance sheet, income
statement, anticipated earnings, revenues, dividends and other
related measures of value.
. Wellington Management then complements its fundamental research
with an internally developed quantitative analytical approach.
This approach consists of both valuation and timeliness
measures. Valuation measures focus on earnings estimates, future
dividend growth, price/earnings ratios and cash flows to
determine the relative attractiveness of different stocks in
different industries. Timeliness measures focus on favorable
earnings, company events and stock price momentum to assess the
appropriate time to purchase a stock.
Those securities that are considered most attractive under both
fundamental and quantitative valuation approaches are favored in
the selection process.
Wellington Management continually monitors every company in the
fund's portfolio for fundamental attractiveness. The fund
typically sells an investment when the investment achieves its
anticipated potential, the company begins to show deteriorating
relative fundamentals, or alternative investments become
sufficiently more attractive.
Principal Investors could lose money on their investments in the fund or the
risks of fund could perform less well than other possible investments if
investing any of the following occurs:
in the . U.S. stock markets go down, or perform poorly relative to other
fund types of investments.
. Prices of the fund's securities fall as a result of general
market movements or unfavorable company news.
. The fund's investment style combining fundamental analysis and
quantitative measures does not produce favorable results
relative to market trends.
. The fund misses out on an investment opportunity because its
assets are invested in lower performing investments.
. Wellington Management's judgments about future economic trends
or the relative value of securities selected for the fund's
portfolio prove to be wrong.
. Wellington Management's hedging strategies are not successful.
Who may The fund may be appropriate for investors who:
want to . are seeking to participate in the long-term growth potential of
invest U.S. stocks
. are looking for an investment with potentially greater return
but higher risk than a fund that invests primarily in fixed
income securities
. are willing to accept the risks of the stock market
The fund may not be appropriate for investors who:
. are uncomfortable with the risks of the stock market
. seek stability of principal
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The Funds' Goals And Strategies
. Select Equity Fund
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Investment Long-term capital growth. The fund's board may change this goal
goal without obtaining the approval of the fund's shareholders.
Key The fund normally invests in twenty to forty common stocks and
investmentsother equity securities of large capitalization U.S. companies.
and These investments are selected primarily from the S&P 500 Index.
strategies
How In selecting investments for the fund, Wellington Management
investmentsfavors large capitalization, high-quality companies with long-term
are growth potential. These are companies with accelerating earnings
selected growth, strong possibility of multiple expansion, or hidden or
unappreciated value.
The fund uses a two-tiered strategy in selecting these
investments:
. Using what is sometimes referred to as a "top down" approach,
Wellington Management analyzes the general economic and
investment environment. This includes an evaluation of economic
conditions, U.S. fiscal and monetary policy, and broad
demographic trends. Through top down analysis, Wellington
Management attempts to identify and anticipate trends and
changes in markets and the overall economy. Wellington
Management then seeks to identify those industries and sectors
that will outperform others in these conditions.
. Following its top down analysis, Wellington Management uses what
is sometimes referred to as a "bottom up" approach, which is the
use of fundamental analysis to identify twenty to forty of the
most attractive large capitalization companies for purchase.
Fundamental analysis involves the assessment of a company's
business environment, global expansion plans, management,
balance sheet, income statement, anticipated earnings, revenues,
and other related measures of value.
Wellington Management continually monitors every company in the
fund's portfolio for fundamental attractiveness. The fund
typically sells an investment when the investment achieves its
anticipated potential, the company begins to show deteriorating
investment fundamentals, or alternative investments become
sufficiently more attractive.
Principal Investors could lose money on their investments in the fund or the
risks of fund could perform less well than other possible investments if
investing any of the following occurs:
in the . U.S. stock markets go down, or perform poorly relative to other
fund types of investments.
. Large capitalization companies fall out of favor with investors.
. Prices of the fund's securities fall as a result of general
market movements or unfavorable company news.
. The fund misses out on an investment opportunity because its
assets are invested in a relatively small number of lower
performing investments.
. Wellington Management's judgments about future economic trends
or the relative value of securities selected for the fund's
portfolio prove to be wrong.
Diversification
The fund is not diversified, which means that it can invest a
higher percentage of its assets in any one issuer than a
diversified fund. Being non-diversified may magnify the fund's
losses from adverse events affecting a particular issuer.
Who may The fund may be appropriate for investors who:
want to . are seeking to participate in the long-term growth potential of
invest U.S. large capitalization stocks
. are looking for an investment with potentially greater return
but higher risk than a fund that invests primarily in fixed
income securities or in equity securities of a large number of
companies
. are willing to accept the risks of the stock market
The fund may not be appropriate for investors who:
. are uncomfortable with the risks of the stock market
. seek stability of principal
. wish to diversify their U.S. stock market investments across
many U.S. companies
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The Funds' Goals And Strategies
. Blue Chip Mid Cap Fund
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Investment Long-term capital growth. The fund's board may change this goal
goal without obtaining the approval of the fund's shareholders.
Key The fund invests primarily in a diversified portfolio of common
investmentsstocks and other equity securities of U.S. companies with market
and capitalizations within the range represented by the S&P Mid Cap
strategies 400 Index.
How The fund is broadly diversified by industry and company. The fund
investmentsfavors high-quality, well-established companies. These are
are companies with a leadership position within an industry, a strong
selected balance sheet, a high return on equity, and a strong management
team.
The fund uses a two-tiered strategy in selecting investments:
. Using what is sometimes referred to as a "top down" approach,
Wellington Management analyzes the general economic and
investment environment. This includes an evaluation of economic
conditions, U.S. fiscal and monetary policy, and broad
demographic trends. Through top down analysis, Wellington
Management attempts to identify and anticipate trends and
changes in markets and the overall economy. Wellington
Management then seeks to identify industries and sectors that
will outperform others in these conditions.
. Following its top down analysis, Wellington Management uses what
is sometimes referred to as a "bottom up" approach, which is the
use of fundamental analysis to identify specific securities
within industries and sectors for purchase or sale. Fundamental
analysis involves the assessment of a company's business
environment, market share, management, global expansion plans,
balance sheet, income statement, anticipated earnings, revenues,
and other related measures of value.
Wellington Management continually monitors every company in the
fund's portfolio for fundamental attractiveness. The fund
typically sells an investment when the investment achieves its
anticipated potential, the company begins to show deteriorating
relative fundamentals or alternative investments become
sufficiently more attractive.
Principal Investors could lose money on their investments in the fund or the
risks of fund could perform less well than other possible investments if
investing any of the following occurs:
in the
fund . U.S. stock markets go down, or perform poorly relative to other
types of investments.
. Medium capitalization companies fall out of favor with
investors.
. Prices of the fund's securities fall as a result of general
market movements or unfavorable company news.
. The fund's investment style and mid-capitalization focus do not
produce favorable results relative to market trends.
. The fund misses out on an investment opportunity because its
assets are invested in lower performing investments.
. Wellington Management's judgments about future economic trends
or the relative value of securities selected for the fund's
portfolio prove to be wrong.
Who may The fund may be appropriate for investors who:
want to . are seeking to participate in the long-term growth potential of
invest U.S. medium capitalization stocks
. are looking for an investment with potentially greater return
but higher risk than a fund that invests primarily in fixed
income securities or in equity securities of large
capitalization companies
. are willing to accept the risks of the stock market
The fund may not be appropriate for investors who:
.are uncomfortable with the risks of the stock market
.seek stability of principal
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The Funds' Goals and Strategies
. Real Estate Fund
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Investment Primary: Long term capital growth. Secondary: Current income and
goals growth of income. The fund's board may change these goals without
obtaining the approval of the fund's shareholders.
Key The fund invests at least 80% of its assets in securities of real
investmentsestate investment trusts (REITs) and other real estate companies.
and The fund generally focuses its investments in equity REITs, which
strategies 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.
How
investments
are selected
The adviser allocates the fund's investments across various
geographic areas, REIT managers and property types, such as
apartments, retail properties, office buildings, hotels,
industrial properties, health care facilities, correctional
facilities, manufactured housing, golf courses and 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 Investors could lose money on their investments in the fund or the
risks of fund could perform less well than other possible investments if
investing any of the following occurs:
in the . The U.S. or a local real estate market declines due to economic
fund 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
and
industry
concentration
The fund is not diversified, which means that it can invest a
higher percentage of its assets in any one issuer than a
diversified fund. Also, the fund concentrates (invests 25% or more
of its 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 The fund may be appropriate for investors who:
want to . are pursuing a long-term goal such as investing for retirement
invest . 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
. seek stability of principal
. are uncomfortable with the risk of price volatility in the stock
and real estate markets
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More About The Funds' Investments
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. Investment Grade Bond Fund
Substantially
all of the
fund's
investments
will be
either
U.S.
dollar-
denominated
or hedged
back into
U.S.
dollars
through
transactions
in
currency
swaps or
other
currency
derivative
contracts.
Permitted investments The fund may invest in all types of fixed
income securities of any maturity or duration, such as:
.bills, notes, bonds
.residential and commercial mortgage-backed securities
.collateralized mortgage and bond obligations
.asset-backed securities
.structured notes and other derivative securities
.convertible securities
.preferred stock and trust certificates
These securities may have many 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.
Lower credit quality securities 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.
. Investors Foundation Fund
. Select Equity Fund
. Blue Chip Mid Cap Fund
Permissible investments and additional risks Each fund invests
primarily in common stocks and common stock equivalents including
convertible debt securities and convertible preferred stocks.
Convertible debt securities and convertible preferred stocks
entitle the holder to acquire the issuer's common stock by
exchange or purchase at a predetermined rate. Convertible debt
securities are subject both to the credit and interest rate risks
associated with fixed income securities and to the stock market
risk associated with equity securities.
While each fund intends to be substantially fully invested in
equity securities of companies with total market capitalizations
within the range represented by the S&P 500 Index and, in the case
of Blue Chip Mid Cap Fund, the S&P Mid Cap 400 Index, each fund
may maintain a portion of its assets in equity securities of
companies with total market capitalizations below, and in the case
of Blue Chip Mid Cap Fund above, the range of the index.
Securities of small capitalization companies may present greater
risks than securities of larger, more established companies. Small
capitalization companies are often volatile and may suffer
significant losses as well as realize substantial growth. In a
declining market, these stocks may be harder to sell, which may
further depress their prices.
American Depositary Receipts and Foreign Securities Each fund may
invest in American Depositary Receipts (ADRs) which are U.S.
dollar denominated securities representing an interest in foreign
securities. Each fund may also invest in foreign securities listed
on a U.S. stock exchange or quoted market such as the New York
Stock Exchange, American Stock Exchange or National Association of
Securities Dealers Automated Quotation. A fund's investments in
foreign securities or ADRs involve greater risk than investments
in securities of U.S. issuers.
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More About The Funds' Investments
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Rights and Warrants Each fund may also invest in rights and
warrants. Rights and warrants entitle the holder to buy common
stock from the issuer at a specified price and time. Rights and
warrants are subject to the same market risks as stocks, but may
be more volatile in price. A fund's investment in these
instruments will not entitle it to receive dividends or exercise
voting rights and will become worthless if the right or warrant is
not exercised before the expiration date.
. Real Estate Fund
The fund Permissible investments and additional risks Although the fund
may invest typically focuses on equity REITs, it may invest without
in a restriction in mortgage REITs and in equity securities of other
variety of U.S. and foreign real estate companies. A mortgage REIT invests
types of most of its assets in real estate mortgages and earns most of its
real income from interest payments. A real estate company is a company
estate that earns at least 50% of its gross revenues or net profits from
companies 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
Funds' Goals and Strategies" 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 its assets in any of the fixed
income securities in which Investment Grade Bond Fund is permitted
to invest.
. Investment Grade Bond Fund
. Investors Foundation Fund
. Real Estate Fund
A Derivative contracts Investing in the individual bonds and
derivative sectors considered most attractive by the adviser may not
contract necessarily enable Investment Grade Bond Fund to achieve its
will target duration. This fund may use derivative contracts to
obligate increase or decrease the fund's duration. In addition, Real
or entitle Estate Fund may use derivative contracts to manage the interest
the fund rate risk associated with both its real estate and fixed income
to deliver investments and to stay fully invested in stocks when it has a
or receive significant cash position.
an asset
or a cash
payment
that is
based on
the change
in value
of a
designated
security,
currency
or index.
Investors Foundation Fund may purchase and sell options and enter
into futures contracts with respect to stocks and stock indices:
(i) to seek to hedge against adverse changes in stock market
prices, or (ii) as a substitute for purchasing or selling
securities.
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More About The Funds' Investments
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Even a small investment in derivative contracts can have a large
impact on a fund's interest rate sensitivity and securities
market exposure. Therefore, using derivatives can
disproportionately increase fund losses and reduce opportunities
for gains when interest rates or securities 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 Investment Grade Bond
Fund and Real Estate 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.
. All Funds
Borrowing Each fund, except Money Market Fund, may borrow up to
one-third of total assets from banks or through reverse
repurchase agreements. Borrowing could create leverage, meaning
that certain gains or losses could be amplified, increasing share
price movements.
Impact of high portfolio turnover Investment Grade Bond Fund,
Investors Foundation Fund, Select Equity Fund and Blue Chip Mid
Cap Fund may engage in active and frequent trading to achieve
their principal investment strategies. Frequent trading increases
transaction costs, which could detract from a fund's performance.
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.
Money Market Fund will not take a defensive position because it
invests exclusively in investment grade money market securities.
- --------------------------------------------------------------------------------
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-9-
<PAGE>
The Investment Adviser and Subadviser
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- --------------------------------------------------------------------------------
Sun
Capital About the Adviser. Sun Capital Advisers, Inc., One Sun Life
Advisers, Executive Park, Wellesley Hills, Massachusetts 02481, is the
Inc. is funds' investment adviser. The funds are the only mutual funds
the funds' managed by the adviser. The adviser is an indirect wholly-owned
investment subsidiary of Sun Life Assurance Company of Canada (Sun Life of
adviser. 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 at June 30, 1999
of $182 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. In the case of the Investors Foundation
Fund, Select Equity Fund and Blue Chip Mid Cap Fund, the adviser
employs a subadviser. 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. In the case of those funds
managed by a subadviser, the adviser pays a subadvisory fee to the
subadviser. No fund is responsible for paying a subadvisory fee
directly.
The adviser intends to limit its management fee and to reimburse
each fund's nonmanagement expenses for an indefinite period. Each
fund's total operating expenses will be capped on an annual basis
to the percentages of the fund's average daily net assets shown in
the table below. To the extent that any fund's total expense ratio
falls below its expense limit, the adviser reserves the right to
be reimbursed for management fees waived and fund expenses paid by
it during the prior two fiscal years. In the case of Money Market
Fund, Investment Grade Bond Fund and Real Estate Fund, the adviser
has contractually agreed to maintain the limit described below
until December 31, 1999. In the case of the Investors Foundation
Fund, Select Equity Fund and Blue Chip Mid Cap Fund, the adviser
has contractually agreed to maintain the limit described below
until September 1, 2000.
Advisory <TABLE>
Fees and <CAPTION>
Total Fund Advisory Fee Total Operating Expenses
Operating
Expenses
<S> <C> <C>
Money Market Fund 0.50% 0.65%
Investment Grade Bond Fund 0.60% 0.75%
Investors Foundation Fund 0.75% 0.90%
Select Equity Fund 0.75% 0.90%
Blue Chip Mid Cap Fund 0.80% 1.00%
Real Estate Fund 0.95% 1.25%
</TABLE>
The advisory fee for Investors Foundation Fund, Select Equity Fund
and Blue Chip Mid Cap Fund declines to 0.70%, 0.70% and 0.75%,
respectively, as each fund's daily net assets exceed $300 million.
Sun Capital Advisers Trust and the adviser intend to file an
application for an exemptive order from the Securities and
Exchange Commission permitting the adviser, subject to the
approval of the board of trustees, to select subadvisers to serve
as portfolio managers of the funds or to materially modify an
existing subadvisory contract without obtaining shareholder
approval of a new or amended subadvisory contract. The adviser has
ultimate responsibility to oversee and to recommend the hiring,
termination and replacement of any subadviser.
About the Subadviser. Wellington Management Company, LLP, 75 State
Street, Boston, Massachusetts 02109, serves as the subadviser to
Investors Foundation Fund, Select Equity Fund and Blue Chip Mid
Cap Fund. Wellington Management is independent of the adviser and
discharges its responsibilities subject to the policies of the
board of trustees of Sun Capital Advisers Trust and the oversight
and supervision of the adviser. Wellington Management is a
professional investment-counseling firm which provides investment
services to mutual funds, employee benefit plans, endowments,
foundations and other institutions and individuals. Wellington
Management and its predecessor organizations have provided
investment advisory services since 1928. Wellington Management is
a Massachusetts limited liability partnership. The three managing
partners of Wellington Management are Laurie A. Gabriel, Duncan M.
McFarland and John R. Ryan. As of June 30, 1999, Wellington
Management had discretionary investment authority with respect to
approximately $221 billion of client assets.
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-10-
<PAGE>
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Wellington Management's Prior Performance for Similar
Accounts. The following tables reflect data supplied by Wellington
Management relating to the performance of all fee paying fully
discretionary portfolios using Wellington Management's "U.S.
Intersection" and "Mid Cap Opportunities" strategies. These
portfolios have investment objectives, policies and strategies
substantially similar, but not necessarily identical, to those of
Investors Foundation Fund and Blue Chip Mid Cap Fund,
respectively. As of June 30, 1999, the U.S. Intersection and Mid
Cap Opportunities strategies consisted of one and two accounts,
having total assets of $131.4 million and $400.3 million,
respectively.
Wellington Management's U.S. Intersection Composite Performance
(comparison composite for Investors Foundation Fund)
<TABLE>
<CAPTION>
Average Annual Total Returns
--------------------------------------
(for periods ended June 30, 1999)
1 3 5 Since Inception
Year Years Years (September 30, 1992)
----- ----- ----- --------------------
<S> <C> <C> <C> <C>
U.S. Intersection Composite. 26.6% 29.3% 27.5% 22.3%
S&P 500 Index............... 22.8% 29.1% 27.9% 22.0%
Lipper Variable Annuity
Underlying Growth and
Income Fund Average........ 15.6% 22.1% 22.0% 18.1%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
----------------------------------
(for 1-year periods ended June 30)
1994 1995 1996 1997 1998 1999
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Intersection Composite...... 4.0% 22.3% 27.5% 31.7% 29.7% 26.6%
S&P 500 Index.................... 1.4% 26.1% 26.0% 34.7% 30.2% 22.8%
Lipper Variable Annuity
Underlying Growth and Income
Fund Average.................... 2.9% 19.8% 23.6% 28.4% 23.1% 15.6%
</TABLE>
Wellington Management's Mid Cap Opportunities Composite
Performance
(comparison composite for Blue Chip Mid Cap Fund)
<TABLE>
<CAPTION>
Average Annual Total Returns
----------------------------------------
(for periods ended June 30, 1999)
Since Inception
1 Year (August 31, 1997)
---------------- -----------------------
<S> <C> <C>
Mid Cap Opportunities
Composite.................. 32.7% 34.2%
S&P Mid Cap 400 Index....... 17.2% 18.1%
Lipper Variable Annuity
Underlying Mid Cap Fund
Average.................... 17.3% 20.1%
</TABLE>
Performance of the Wellington Management composites is not that of
either Investors Foundation Fund or Blue Chip Mid Cap Fund, is not
a substitute for either fund's performance and does not predict a
fund's performance results, which may differ from the composites'
results.
The Wellington Management composite performance data in each table
for the U.S. Intersection portfolio and Mid Cap Opportunities
portfolios has been adjusted to reflect the estimated total
operating expenses (after giving effect to the adviser's
contractual expense limit) of the Investors Foundation Fund (.90%)
and Blue Chip Mid Cap Fund (1.00%), respectively. The adviser has
agreed to maintain these expense limits until September 1, 2000.
The performance data has not been adjusted to reflect any of the
charges assessed against insurance company separate accounts or
variable life insurance or variable annuity products for which
these funds serve as investment vehicles. Unlike mutual funds,
- --------------------------------------------------------------------------------
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-11-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
private accounts are not subject to certain investment
limitations, diversification requirements and other restrictions
imposed by the Investment Company Act of 1940, as amended, and the
Internal Revenue Code of 1986, as amended. Complying with these
regulatory requirements may have an adverse effect on each fund's
performance. Similarly, private accounts generally do not
experience the same types of cash inflows and outflows as mutual
funds and generally do not hold significant cash for liquidity
purposes.
The S&P 500 and S&P Mid Cap 400 Indices are unmanaged, weighted
indices of the stock performance of industrial, transportation,
utility and financial companies. The S&P 500 Index represents the
performance of 500 of these companies, and the S&P Mid Cap 400
represents the performance of 400 of these companies having medium
size market capitalizations (between $243 million and $10.3
billion as of June 30, 1999). The Lipper Variable Annuity
Underlying Growth and Income Fund Average is a composite return of
191 funds that invest primarily in growth companies. The Lipper
Variable Annuity Underlying Mid Cap Fund Average is a composite
return of 76 funds that invest primarily in companies having
market capitalizations between $1 billion and $5 billion.
The Wellington Management composite performance results were
calculated in accordance with the Performance Presentation
Standards of the Association for Investment Management and
Research (AIMR) retroactively applied for all periods. Since these
results were not calculated for mutual funds, they are not based
on SEC mutual fund performance standards. Performance calculations
based on SEC mutual fund performance standards would have been
different. All investment results shown in the table assume the
reinvestment of dividends.
- --------------------------------------------------------------------------------
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-12-
<PAGE>
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- --------------------------------------------------------------------------------
Portfolio Managers. The adviser has selected the following persons to manage
the investments for the funds.
<TABLE>
<CAPTION>
Fund Fund Positions during past five years
manager(s)
<C> <C> <S>
Investment Grade Bond Fund Richard Vice president, Sun Capital
and Money Market Fund Gordon, CFA Advisers Trust, since 1998. Vice
president, Sun Capital Advisers,
Inc., since 1992. Vice president,
U.S. Public Bonds, Sun Life
Assurance Company of Canada, since
1994. Prior to that, assistant
vice president (1987-1994).
Howard C. Vice president, Sun Capital
Greene, CFA Advisers Trust, since 1998. Vice
president, Sun Capital Advisers,
Inc., since 1998. Assistant vice
president, U.S. Public Bonds, Sun
Life Assurance Company of Canada,
since 1996. Prior to that, senior
investment officer (1989-1996).
Investors Foundation Fund Doris Dwyer Chu Vice president, Wellington
Management Company, LLP since
1998. Prior to that, partner and
portfolio manager, Grantham, Mayo,
Van Otterloo & Co. (1985-1998).
Select Equity Fund Maya K. Bittar Vice president, Wellington
Management Company, LLP since
1998. Prior to that, senior
portfolio manager, Firstar
Investment Research and Management
Company (1993-1998).
Blue Chip Mid Cap Fund Jeffrey M. Vice president, Wellington
Schwartz Management Company, LLP since
1999. Prior to that, vice
president of Institutional Equity
Sales, Merrill Lynch (1994-1999).
Real Estate Fund John T. Vice president, Sun Capital
Donnelly, Advisers Trust, since 1998. Vice
CFA president, Sun Capital Advisers,
Inc., since 1998. Vice president,
U.S. Equities, Sun Life Assurance
Company of Canada, since 1999.
Prior to that, assistant vice
president (1997-1999), senior
investment officer, U.S. Public
Bonds (1994-1997), and investment
officer, Portfolio Management
(1991-1994).
Joseph H. Senior investment analyst, U.S.
Bozoyan Equities, Sun Life Assurance
Company of Canada, since 1997.
Prior to that, senior investment
analyst, U.S. Public Bonds (1996-
1997), and investment analyst,
(1994-1996).
Thomas V. Vice president, Sun Capital
Pedulla Advisers, Inc., since 1998. Senior
property investments officer, U.S.
Real Estate, Sun Life Assurance
Company of Canada, since 1999.
Prior to that, property
investments officer (1995-1999),
and senior property investments
analyst (1993-1995).
</TABLE>
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-13-
<PAGE>
Purchase and Redemption Information
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund shares Buying and Redeeming Shares. Each fund sells its shares at net
are offered asset value (NAV) directly to separate accounts established and
exclusively maintained by insurance companies for the purpose of funding
to variable contracts. Each fund may suspend the offer of its
insurance shares and reserves the right to reject any specific purchase
company order. A fund may refuse a purchase order if, in the adviser's
separate opinion, the order is of a size that would disrupt the
accounts. management of a fund.
Insurance company separate accounts that accept orders from
contractholders to purchase and redeem fund shares before the
close of trading on the New York Stock Exchange will receive
that day's NAV (which will be calculated as of the close of
trading), provided that the insurance company transmits the
orders to the fund prior to the opening of trading on the
Exchange on the next business day. If the fund receives orders
after the Exchange opens, those orders will receive the next
business day's NAV.
Each fund redeems its shares on any business day. 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 when received by the insurance company in the manner
described above. Automatic transactions include investment of
net premiums, payment of death benefits, deduction of fees and
charges, transfers, surrenders, loans, loan repayments,
deductions of interest on loans, lapses, reinstatements and
similar automatic transactions.
Fund shares Valuation of Shares. Each fund offers its shares at the NAV per
are offered share of the fund. Each fund calculates its NAV once daily as
at net of the close of regular trading on the New York Stock Exchange
asset (generally at 4:00 p.m., New York time) on each day the
value. The Exchange is open. If the Exchange closes early, the funds will
separate accelerate the determination of NAV to the closing time. On any
account day an international market is closed and the Exchange is open,
does not a fund will value its foreign securities, if any, at the prior
pay a sales day's close with the current day's exchange rate.
charge to
buy fund
shares.
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 board of trustees.
Because international markets may be open on days when U.S.
markets are closed, the value of foreign securities owned by a
fund could change on days when an insurance company cannot buy
or sell shares. 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. A fund that uses fair value to
price securities may value those securities higher or lower
than another fund that uses market quotations to price the same
securities.
The funds
distribute Dividends and Distributions. Each fund intends to distribute
capital all or substantially all of its net realized capital gains, if
gains and any, and net investment income for each taxable year.
income. Investment Grade Bond Fund and Money Market Fund declare
dividends from net investment income daily and pay dividends
monthly. Investors Foundation Fund, Select Equity Fund, Blue
Chip Mid Cap Fund and Real Estate Fund declare and pay
dividends from net investment income at least annually. Each
fund distributes its net realized capital gains, if any, at
least annually. The funds expect 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. Shares purchased become entitled to
dividends as of the first business day following the date of
investment.
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
- --------------------------------------------------------------------------------
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-14-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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 failure of 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.
Investments by Variable Product Separate Accounts in Shares of
the Portfolios. Each fund will sell its shares to separate
accounts established and maintained by insurance companies for
the purpose of funding variable insurance products including
variable annuity contracts and variable life insurance
policies. The variable insurance products may or may not make
investments in all the funds described in this Prospectus.
The interests of owners of different variable insurance
products investing in a fund could conflict due to differences
of tax treatment and other considerations. The Trust currently
does not foresee any disadvantages to investors arising from
the fact that each fund may offer its shares to different
insurance company separate accounts that serve as the
investment medium for their variable annuity and variable life
products. Nevertheless, the Board of Trustees will monitor
events to identify any material irreconcilable conflicts which
may arise, and to determine what action, if any, should be
taken in response to these conflicts. If a conflict were to
occur, one or more insurance companies' separate accounts might
be required to withdraw their investments in one or more funds
and shares of another fund may be substituted. In addition, the
sale of shares may be suspended or terminated if required by
law or regulatory authority or if it is in the best interests
of the fund's shareholders.
- --------------------------------------------------------------------------------
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-15-
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you
understand the performance of each of the following funds since
inception. Certain information reflects financial results for a
single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share
assuming reinvestment of all dividends and distributions. The
information in the following table relating to the period ended
December 31, 1998 was audited by Deloitte & Touche LLP,
independent public accountants, whose report, along with the
funds' financial statements, are included in the annual report
(available upon request). The information for the period ended
June 30, 1999 is not audited. Financial highlights for
Investors Foundation Fund, Select Equity Fund and Blue Chip Mid
Cap Fund are not shown because these funds have not yet
commenced investment operations during the periods shown.
Selected data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Sun Capital
Sun Capital Investment Grade Sun Capital
Money Market Fund Bond Fund Real Estate Fund
----------------------------------- ----------------------------------- -----------------------------------
Six Months Ended Six Months Ended Six Months Ended
Period Ended June 30, 1999 Period Ended June 30, 1999 Period Ended June 30, 1999
December 31, 1998* (unaudited) December 31, 1998* (unaudited) December 31, 1998* (unaudited)
------------------ ---------------- ------------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.......... $1.000 $1.000 $10.000 $ 9.970 $10.000 $ 9.850
------ ------ ------- ------- ------- -------
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS:
Net investment
income......... 0.003 0.021 0.034 0.284 0.082 0.239
Net realized and
unrealized gain
(loss) on
investments ... -- -- (0.030) (0.330) (0.152) 0.211
------ ------ ------- ------- ------- -------
Total from
Investment
Operations .... 0.003 0.021 0.004 (0.046) (0.070) 0.450
------ ------ ------- ------- ------- -------
LESS
DISTRIBUTIONS
FROM:
Net investment
income ........ (0.003) (0.021) (0.034) (0.284) (0.080) --
------ ------ ------- ------- ------- -------
Total
Distributions.. (0.003) (0.021) (0.034) (0.284) (0.080) --
------ ------ ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD .. $1.000 $1.000 $ 9.970 $ 9.640 $ 9.850 $10.300
====== ====== ======= ======= ======= =======
TOTAL RETURN(a) . 0.31 % 2.15 % 0.04 % (0.48)% (0.71)% 4.57%
====== ====== ======= ======= ======= =======
RATIOS AND
SUPPLEMENTAL
DATA:
Net assets, end
of period
(000's) ........ $2,510 $4,763 $10,026 $12,552 $ 4,930 $ 5,710
Ratios to average
net assets:
Net expenses(b)
............... 0.65 % 0.65 % 0.75 % 0.75 % 1.25 % 1.25%
Gross
expenses(b).... 12.29 % 3.47 % 4.10 % 2.01 % 7.44 % 3.09%
Net investment
income (b) .... 4.48 % 4.29 % 5.01 % 5.82 % 12.16 % 5.16%
Portfolio
turnover rate .. N/A N/A 3 % 43 % 2 % 13%
</TABLE>
- ------
* For the period from December 7, 1998 (commencement of operations) to
December 31, 1998.
(a) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(b) Annualized for periods less than one year.
- --------------------------------------------------------------------------------
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-16-
<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
One Sun Life Executive Park
Wellesley Hills, MA 02481
Telephone: 1-800-432-1102 x1780
Investment Adviser Administrator,
Custodian
Sun Capital Advisers,
Inc. State Street Bank &
Trust Company
Independent Public
Accountants Legal Counsel
Deloitte & Touche LLP Hale and Dorr LLP
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 Investors Foundation Fund
Sun Capital Select Equity Fund
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Real Estate Fund
Sun Capital Advisers Trust
Investment Company Act file no. 811-08879
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Sun Capital Advisers Trust
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Investors Foundation Fund
Sun Capital Select Equity Fund
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Real Estate Fund
Statement of Additional Information
September 1, 1999
The statement of additional information is not a prospectus. The funds'
prospectus, dated September 1, 1999, may be obtained by contacting your agent
or the funds at:
Sun Capital Advisers Trust
One Sun Life Executive Park
Wellesley Hills, MA 02481
Telephone: 1-800-432-1102 x1780
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
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 25
The Investment Adviser 26
The Subadviser 28
Administrator 31
Transfer Agent 31
Custodian 31
Independent Public Accountants 31
Information About The Trust's History And Organization 32
More Information About How The Funds Value Their Shares 34
Taxes 36
Brokerage Allocation 40
Calculation of Performance Information 42
Financial Statements 45
Appendix A A-1
</TABLE>
ii
<PAGE>
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 invests 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. Investors Foundation Fund
invests at least 65% of its total assets in common stocks and other equity
securities of U.S. companies with market capitalizations within the range
represented by the S&P 500 Index. Select Equity Fund normally invests at least
65% of its total assets in common stocks and other equity securities of large
capitalization U.S. companies. Blue Chip Mid Cap Fund normally invests at least
65% of its total assets in common stocks and other equity securities of U.S.
companies with market capitalizations within the range represented in the S&P
Mid Cap 400 Index. Real Estate Fund invests at least 80% of its total assets in
REITs and other real estate companies. More information about those securities
is provided below.
Money Market Fund, Investment Grade Bond Fund, Investors Foundation Fund and
Blue Chip Mid Cap Fund are diversified mutual funds. This means that with
respect to 75% of each 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. Select Equity Fund and Real Estate Fund are not diversified and each may
invest without regard to such limits. This means that the net asset value of
Select Equity Fund and Real Estate Fund may be more volatile because each fund's
portfolio may be invested in fewer securities and each fund may be more
sensitive to events affecting the value of these securities. However, both
Select Equity Fund and Real Estate Fund (and the other funds) 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 both Select Equity Fund's
and Real Estate Fund's volatility risk.
Securities in which the funds may invest.
Common Shares. (Investors Foundation Fund, Select Equity Fund, Blue Chip Mid
- -------------
Cap Fund and Real Estate Fund) Common shares represent an equity
(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.
1
<PAGE>
Preferred Shares. (All funds) Preferred shares represent a limited equity
- ----------------
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. (All funds except Money Market Fund) 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 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. (All funds except Money Market 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 regulated 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
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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.
Risk Factors Associated with Equity and Mortgage REITs. In addition to these
risks, equity REITs may be affected by changes in the value of the underlying
property owned by the trusts, while mortgage REITs may be affected by the
quality of any credit extended. Further, equity and mortgage REITs are dependent
upon management skills and generally may not be diversified. Equity and mortgage
REITs are also subject to heavy cash flow dependency, borrower default and self-
liquidation.
Mortgage REITs are also subject to different combinations of prepayment,
extension, interest rate and other market risks. The real estate mortgages
underlying mortgage REITs are generally subject to a faster rate of principal
repayments in a declining interest rate environment and to a slower rate of
principal repayments in an increasing interest rate environment.
Fixed-income Securities. (Money Market Fund, Investment Grade Bond Fund and Real
- -----------------------
Estate Fund) 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
3
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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 a 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.
Lower Rated High Yield Fixed-income Securities. (Investment Grade Bond Fund;
Real Estate 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
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the fund's objective will depend more on the adviser's judgment and analysis
than it otherwise would. 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 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 (e.g.,
Government National Mortgage Association (GNMA)), (b) the right of the issuer to
borrow from the U.S. Treasury (e.g., Federal Home Loan Banks), (c) the
discretionary authority of the U.S. government to purchase certain obligations
of the issuer (e.g., 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. (Money Market Fund, Investment Grade Bond Fund and
- --------------------------
Real Estate Fund) Mortgage-backed securities represent participation interests
in pools of adjustable and fixed rate mortgage loans secured by real property.
5
<PAGE>
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,
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. (Money Market Fund, Investment Grade Bond Fund and
Real Estate Fund) 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
GNMA, FNMA and FHLMC. GNMA securities are backed by the full faith and credit
of the U.S.
6
<PAGE>
government, which means that the U.S. government guarantees that the
interest and principal will be paid when due. FNMA securities and FHLMC
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. (Money Market Fund, Investment
Grade Bond Fund and Real Estate Fund) 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 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. (Money Market Fund, Investment Grade Bond Fund and
- -----------------------
Real Estate Fund) 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.
7
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Structured Securities. (Investment Grade Bond Fund; Real Estate 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. (Investment Grade Bond Fund;
- --------------------------------------------------
Real Estate Fund) These securities are generally issued at a discount from their
face value because actual interest 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. (Money Market Fund, Investment Grade Bond
- ---------------------------------
Fund and Real Estate Fund) 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). Investors Foundation Fund, Select Equity Fund and
Blue Chip Mid Cap Fund may only invest in securities of foreign issuers which
are listed on a U.S. stock exchange or quoted market, such as the New York Stock
Exchange, American Stock Exchange or National Association of Securities Dealers
Automated Quotation. A company is
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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. (All funds except Money Market Fund) 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. Investors Foundation
Fund, Select Equity Fund and Blue Chip Mid Cap Fund only invest in ADRs and
limit such investment to the extent that the ADR is represented in the S&P 500
Index and, in the case of Blue Chip Mid Cap Fund, the S&P Mid Cap 400 Index.
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
International Bank for Reconstruction and Development (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. (Money Market Fund, Investment Grade Bond Fund and
Real Estate Fund) 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
9
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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. (Money Market Fund, Investment Grade
Bond Fund and Real Estate Fund) 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 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 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.
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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 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 equal to 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. Repurchase agreements that
mature in more than seven days will be treated as illiquid for purposes of each
fund's 15% limit (10% for Money Market Fund) on illiquid investments.
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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. (All funds except Money Market Fund) A fund may
- -----------------------------
also enter into reverse repurchase 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 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) on 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.
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Other investment companies. (All funds) Each fund may invest in shares of
- --------------------------
other investment companies to the extent permitted by the 1940 Act. With
certain exceptions, the 1940 Act: (a) prohibits a fund, together with any
companies controlled by the fund, from acquiring more than 3% of the total
outstanding securities of any other investment company, and (b) prohibits a fund
from investing more than 5% of its total assets in any one investment company
and more than 10% of its total assets in the securities of other investment
companies in the aggregate.
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 forward commitment or when-issued 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 forward
commitment or when-issued 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
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.
Options on Securities and Securities Indices. (Investment Grade Bond Fund;
- --------------------------------------------
Investors Foundation Fund; Real Estate 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
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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."
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.
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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 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. (Investment Grade Bond
- --------------------------------------------------
Fund; Investors Foundation Fund; Real Estate 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
15
<PAGE>
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 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.
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<PAGE>
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.
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
17
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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. (Investment Grade Bond Fund; Real Estate Fund) A
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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 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,
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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 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
19
<PAGE>
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 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. (Investment Grade Bond Fund; Real Estate 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. (All funds) For temporary and defensive purposes, a
- ---------------------
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, commercial paper, floating rate
notes, and
20
<PAGE>
repurchase agreements. A fund may also hold significant amounts of its assets in
cash. Money Market Fund will not take a defensive position because it invests
exclusively in investment grade money market securities.
Lending of Securities. (All funds except Money Market Fund) 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.
Short-Term Trading and Portfolio Turnover. (All funds except Money Market Fund)
- -----------------------------------------
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. The United States government, its
agencies or instrumentalities are not considered industries for this purpose.
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
21
<PAGE>
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 Money Market Fund,
Investment Grade Bond Fund, Investors Foundation Fund and Blue Chip Mid Cap Fund
as diversified funds.
The 1940 Act currently prohibits the funds from issuing senior securities or
borrowing money, except each fund, with the exception of Money Market 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, Investors Foundation Fund and Blue Chip Mid
-----------------------------------------------------------------------
Cap Fund. With respect to 75% of the fund's assets, invest more than 5% of the
- --------
fund's assets (taken at 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.
22
<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 Assurance Company of Canada 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* Chairman, Executive Vice President and Chief Operating Officer,
One Sun Life Executive Park President and Trustee Sun Life Assurance Company of Canada
Wellesley Hills, MA 02481 since 1999. Prior to that, senior vice
Date of birth: April 21, 1951 president and general manager, U.S.
operations, Sun Life Assurance Company
of Canada, since 1997, and vice
president, Investments, U.S.
operations, Sun Life Assurance Company
of Canada. Chairman, since 1998 and
director, Sun Capital Advisers, Inc.
since 1992.
Graham E. Jones Trustee Senior vice president, BGK Properties,
330 Garfield Street Inc., since 1994. Chief Financial
Santa Fe, NM 87501 Officer and Principal, Practice
Date of birth: January 21, 1933 Management Systems, Inc. from 1988-95.
Anthony C. Paddock Trustee Managing Director, Empire Valuation
350 Fifth Street, Suite 5713 Consultants, Inc., since 1996.
New York, NY 10118 President, AC Paddock & Associates,
Date of birth: July 9, 1935 since 1996. Prior to that, principal,
KPMG Peat Marwick from 1987-96.
William N. Searcy, Jr. Trustee Pension and savings trust officer,
2330 Shawnee Mission Parkway Sprint Corp., since 1989.
Westwood, KS 66205
Date of birth: September 3, 1946
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
James M.A. Anderson* President, Chief Executive Vice president, Investments, U.S.
One Sun Life Executive Park Officer and Trustee operations, Sun Life Assurance Company
Wellesley Hills, MA 02481 of Canada, since 1998. Prior to that,
Date of birth: September 14, 1949 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.
James F. Alban* Chief Financial Officer and Assistant vice president, Sun Capital
One Sun Life Executive Park Treasurer Advisers, Inc. since 1998. Audit
Wellesley Hills, MA 02481 senior manager, PricewaterhouseCoopers
Date of birth: January 23, 1962 LLP, 1996-1998. Assistant vice
president, Eaton Vance Management,
1991-1996.
Robert P. Vrolyk* Assistant Treasurer Vice president and chief actuary, U.S.
One Sun Life Executive Park operations, Sun Life Assurance Company
Wellesley Hills, MA 02481 of Canada, since 1993. Vice president,
Date of birth: April 15, 1953 treasurer and director, Sun Capital
Advisers, Inc. since 1998.
Richard Gordon, CFA* Vice President Vice president, Sun Capital Advisers,
One Sun Life Executive Park Inc., since 1992. Vice president, U.S.
Wellesley Hills, MA 02481 Public Bonds, Sun Life Assurance
Date of birth: July 10, 1945 Company of Canada, since 1994. Prior
to that, assistant vice president,
1987-1994.
Howard C. Greene, CFA* Vice President Vice president, Sun Capital Advisers,
One Sun Life Executive Park Inc., since 1998. Assistant vice
Wellesley Hills, MA 02481 president, U.S. Public Bonds, Sun Life
Date of birth: July 22, 1957 Assurance Company of Canada, since
1996. Prior to that, senior investment
officer, 1989-1996.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
John T. Donnelly, CFA* Vice President Vice president, Sun Capital Advisers,
One Sun Life Executive Park Inc., since 1998. Vice president, U.S.
Wellesley Hills, MA 02481 Equities, Sun Life Assurance Company of
Date of birth: October 28, 1958 Canada since 1999. Prior to that,
assistant vice president, U.S.
Equities, Sun Life Assurance Company of
Canada (1997-1999), senior investment
officer U.S. Public Bonds (1994-1997),
and investment officer, Portfolio
Management, 1991-1994.
Maura A. Murphy, Esq.* Secretary Senior counsel, U.S. operations, Sun
One Sun Life Executive Park Life Assurance Company of Canada, since
Wellesley Hills, MA 02481 1998. Prior to that, securities
Date of birth: February 12, 1960 counsel, New England Life Insurance
Company, 1994-98. Prior to that,
senior counsel, U.S. Securities and
Exchange Commission, 1990-94.
Peter F. Demuth, Esq.* Assistant Secretary Vice president and chief counsel, U.S.
One Sun Life Executive Park operations, Sun Life Assurance Company
Wellesley Hills, MA 02481 of Canada, since 1998. Prior to that,
Date of birth: June 4, 1958 member, Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C (law firm) since
1992.
Christopher P. Harvey, Esq.* Assistant Secretary Partner, Hale and Dorr LLP (law firm),
60 State Street since 1991, counsel to the trust.
Boston, MA 02109
Date of birth: June 27, 1961
</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
following table sets forth all compensation paid to the trustees as of the
funds' fiscal year ended December 31, 1998. The trustees who are officers or
employees of Sun Life Assurance Company of Canada or the adviser are not paid by
the trust for their service as trustees.
25
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Total
Aggregate Pension or retirement Estimated annual compensation
Name and position compensation from benefits accrued as part benefits upon from the trust
with the trust the trust of funds' expenses retirement paid to trustees*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Graham E. Jones $1,750 0 0 $1,750
- ---------------------------------------------------------------------------------------------------------------------
Anthony C. Paddock 1,750 0 0 1,750
- ---------------------------------------------------------------------------------------------------------------------
William N. Searcy, Jr. 2,000 0 0 2,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* The trust is the only registered investment company managed by the
adviser.
As of July 31, 1999, the trustees and officers of Sun Capital Advisers Trust as
a group owned less than 1% of the outstanding shares of beneficial interest in
each of the funds.
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, Asia Pacific and
South America.
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.
Terms of Advisory Agreements. Each fund has entered into an investment advisory
agreement with the adviser which was approved by the fund's trustees. Under the
terms of each 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. In the case
of the Investors Foundation Fund, Select Equity Fund and Blue Chip Mid Cap Fund,
the adviser has engaged Wellington Management Company, LLP to serve as
subadviser to perform its investment management duties. The adviser may enter
into agreements with Sun Life of Canada to utilize the resources and personnel
of the company.
26
<PAGE>
Each fund bears the cost of its operations not expressly assumed by the adviser
or another service provider. These costs may include, but are not limited to,
(i) charges and expenses for fund accounting, pricing and appraisal services and
related overhead, including, to the extent such services are performed by
personnel of the adviser, or its affiliates, office space and facilities and
personnel compensation, training and benefits; (ii) charges and expenses of
auditors; (iii) charges and expenses of any custodian, administrator, transfer
agent, plan agent, dividend disbursing agent and registrar appointed by the
trust; (iv) issue and transfer taxes chargeable to the trust in connection with
securities transactions to which the trust is a party; (v) insurance premiums,
interest charges, dues and fees for membership in trade associations and all
taxes and corporate fees payable by the trust to federal, state or other
governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the trust and/or its shares with the Commission,
state securities agencies and foreign jurisdictions, including the preparation
of prospectuses and statements of additional information for filing with such
regulatory agencies; (vii) all expenses of shareholders' and trustees' meetings
and of preparing, printing and distributing prospectuses, notices, proxy
statements and all reports to shareholders and to governmental agencies; (viii)
charges and expenses of legal counsel to the trust and the trustees; (ix) if
applicable, any distribution fees paid by the trust in accordance with Rule 12b-
1 promulgated by the Commission pursuant to the 1940 Act; (x) compensation of
those trustees of the trust who are not affiliated with or interested persons of
the adviser or the trust (other than as trustees); (xi) the cost of preparing
and printing share certificates; and (xii) interest on borrowed money, if any.
Each of the following funds pays a fee monthly to the adviser for its advisory
services based on a stated percentage of its average daily net assets as
follows:
<TABLE>
<CAPTION>
Fund Asset Level Fee
<S> <C> <C>
Money Market Fund All 0.50%
Investment Grade Bond Fund All 0.60%
Investors Foundation Fund $0 to $300 million 0.75%
above $300 million 0.70%
Select Equity Fund $0 to $300 million 0.75%
above $300 million 0.70%
Blue Chip Mid Cap Fund $0 to $300 million 0.80%
above $300 million 0.75%
Real Estate Fund All 0.95%
</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.
To the extent that a fund's total expense ratio falls below its expense limit,
the adviser reserves the right to be reimbursed for management fees waived and
fund expenses paid by it during the prior two fiscal years. In the case of
Money Market Fund, Investment Grade Bond Fund and Real Estate Fund, the adviser
has contractually agreed to limit these funds' advisory fees and to reimburse
their other fund expenses to reduce each of these fund's total annual operating
expenses to the amounts set forth below until December 31, 1999. In the case of
Investors Foundation Fund, Select
27
<PAGE>
Equity Fund and Blue Chip Mid Cap Fund the adviser has contractually agreed to
limit such fees and reimburse such expenses to reduce each of these funds total
annual operating expenses to the amounts set forth below until
September 1, 2000.
<TABLE>
<CAPTION>
Fund Total Operating Expenses
---- ------------------------
<S> <C>
Money Market Fund 0.65%
Investment Grade Bond Fund 0.75%
Investors Foundation Fund 0.90%
Select Equity Fund 0.90%
Blue Chip Mid Cap Fund 1.00%
Real Estate Fund 1.25%
</TABLE>
For the period ended December 31, 1998, the adviser waived all of the advisory
fees due to it for the period. Absent this fee waiver, the advisory fees would
have been $857, $4,096 and $3,200 for Money Market Fund, Investment Grade Bond
Fund and Real Estate Fund.
Pursuant to the advisory agreements, 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 each 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 of each of the Money Market Fund, Investment Grade Bond
Fund and Real Estate Fund initially expires on October 31, 2000. The advisory
agreement of each of the Investors Foundation Fund, Select Equity Fund and Blue
Chip Mid Cap Fund initially expires on August 26, 2001. Each agreement 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. Each 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.
The Subadviser. The trust and the adviser have engaged the services of
Wellington Management Company, LLP (the "Subadviser") to assist with the
portfolio management of Investors Foundation Fund, Select Equity Fund and Blue
Chip Mid Cap Fund (each, a "Subadvised Fund"). Additional information
28
<PAGE>
about the Subadviser is set forth in the prospectus. The Subadviser is a
Massachusetts limited liability partnership and a registered investment adviser.
Terms of Subadvisory Agreements. The Subadviser has entered into a subadvisory
agreement with the adviser and the trust on behalf of each Subadvised Fund. The
Subadviser is responsible for providing each Subadvised Fund with advice
concerning the investment management of that fund's portfolio. This advice must
be consistent with the investment objectives and policies of the Subadvised
Fund. The Subadviser determines what securities shall be purchased, sold or
held for the Subadvised Fund and what portion of the fund's assets are held
uninvested.
The adviser pays the Subadviser out of its own resources; none of the Subadvised
Funds has an obligation to pay the Subadviser. The Subadviser's subadvisory fee
rate is based on a stated percentage of each Subadvised Fund's average daily net
assets as follows:
<TABLE>
<CAPTION>
Fund Asset Level Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investors Foundation Fund $0 to $50 million .50%
above $50 million to $200 million .35%
above $200 million to $500 million .30%
above $500 million .25%
- ---------------------------------------------------------------------------------------------------------
Select Equity Fund $0 to $50 million .50%
above $50 million to $200 million .35%
above $200 million to $500 million .30%
above $500 million .25%
- ---------------------------------------------------------------------------------------------------------
Blue Chip Mid Cap Fund $0 to $50 million .55%
above $50 million to $200 million .45%
above $200 million to $500 million .40%
above $500 million .35%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Subadviser is responsible for bearing its own costs of providing services to
each Subadvised Fund. The Subadviser will not be responsible for (i) the
Subadvised Fund's legal, auditing and accounting expenses; (ii) expenses of
maintenance of the Subadvised Fund's books and records, including computation of
the Subadvised Fund's daily net asset value per share and dividends; (iii)
interest, taxes, governmental fees and membership dues incurred by the
Subadvised Fund; (iv) fees of the Subadvised Fund's custodians, transfer agents,
registrars or other agents; (v) expenses of preparing the Subadvised Fund's
share certificates; (vi) expenses relating to the redemption or repurchase of
the Subadvised Fund's shares; (vii) expenses of registering and qualifying the
Subadvised Fund's shares for sale under applicable federal and state laws;
(viii) expenses of preparing, setting in print, printing and distributing
prospectuses, reports, notices and dividends to Subadvised Fund investors
(except that the Subadviser will be responsible for costs associated with
supplements to such documents necessitated by a change of control of the
Subadviser or any change in the portfolio manager or managers assigned by the
Subadviser to manage the Subadvised Fund); (ix) cost of Subadvised Fund
stationery; (x) costs of trustee, shareholder and other meetings of the trust or
the Subadvised Fund (except that the Subadviser will be responsible for costs
necessitated by any change of control of the Subadviser); (xi) traveling
expenses of officers, trustees and employees of the trust or the Subadvised
Fund; (xii) fees of the trust's trustees and salaries of any officers or
employees of the trust or the Subadvised Fund; and (xiii) the Subadvised Fund's
pro rata portion of premiums on any fidelity bond and other insurance covering
the trust or the Subadvised Fund and their officers and trustees.
29
<PAGE>
The Subadviser is responsible for making specific decisions to buy and sell
securities for each Subadvised Fund. The Subadviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges.
Pursuant to each subadvisory agreement, the Subadviser is not liable for any
loss sustained by reason of the adoption of any investment policy or for any
security transaction based on the Subadviser's good faith recommendation. The
Subadviser will be liable for losses due to (a) the Subadviser's causing the
Subadvised Fund to violate any federal or state law, rule or regulation or any
Subadvised Fund's investment policy or restriction, (b) the Subadviser's causing
the Subadvised Fund to fail the diversification requirements of the Internal
Revenue Code, or (c) the Subadviser's willful misfeasance, bad faith or
negligence generally in the performance of its duties or its reckless disregard
of its obligations and duties under the subadvisory agreement.
Each subadvisory agreement provides that the Subadviser will indemnify and hold
harmless the adviser, its affiliated persons and the Subadvised Fund
(collectively, the "Indemnified Persons") to the fullest extent permitted by law
against any and all loss, damage, judgments, fines, amounts paid in settlement
and attorneys fees incurred by any Indemnified Person to the extent resulting,
in whole or in part, from any of the Subadviser's acts or omissions specified in
(a), (b) or (c) above, any breach of any duty or warranty thereunder of the
Subadviser or any inaccuracy of any representation of the Subadviser made
thereunder, provided, however, that nothing contained therein will provide
indemnity to any Indemnified Person for liability resulting from its own willful
misfeasance, bad faith, or negligence in the performance of its duties or
reckless disregard of such duties.
Each subadvisory agreement initially expires on August 26, 2001, and will
continue in effect from year to year for each Subadvised Fund if approved by
either the vote of the Subadvised 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 subadvisory agreement may be
terminated on 60 days' written notice by the Subadvised Fund or adviser or by a
vote of a majority of the outstanding voting securities of the affected fund.
The subadviser agreement may be terminated by the Subadviser upon 120 days
notice.
Restrictions on Personal Trading. In order to avoid conflicts with portfolio
trades for the funds, the adviser, Subadviser and the funds have adopted
restrictions on personal securities trading by personnel of the adviser,
subadviser and their affiliates. Some of the adviser's restrictions include
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings by certain personnel. 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. The adviser provides
the trust's board of trustees with a quarterly certification of the adviser's
compliance with its code of ethics and a report of any significant violations of
its code.
Because the Subadviser is an entity not otherwise affiliated with the trust or
the adviser, the Subadviser has responsibility for monitoring the personal
trading activities of the Subadviser's personnel. The Subadviser provides the
trust's board of trustees with a quarterly certification of the Subadviser's
compliance with its code of ethics and a report of any significant violations of
its code.
Allocation of Investment Opportunities. Securities held by a fund may also be
held by other funds or investment advisory clients for which the adviser,
subadviser or any of their affiliates provides investment advice. Because of
different investment objectives or other factors, a particular security may
30
<PAGE>
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
subadviser 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,
subadviser or their 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.
Administrator. State Street Bank & Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the funds' administrator. State Street is responsible
for managing the funds' business affairs. State Street's services include
recordkeeping, preparation and filing of documents required to comply with
federal and state securities laws, preparation and filing of tax returns,
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, State Street receives an asset based fee with
breakpoints not to exceed 0.08% of the average net assets of each fund subject
to a minimum fee of $57,500 per fund.
For the six month period ended June 30, 1999, each of the funds paid the
administrator as follows:
<TABLE>
<CAPTION>
MONEY MARKET FUND INVESTMENT GRADE BOND FUND REAL ESTATE FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
$10,822 $10,822 $10,822
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Investors Foundation Fund, Select Equity Fund and Blue Chip Mid Cap Fund each
have not commenced operations as of the date of this statement of additional
information and thus, have not accrued administration fees.
Transfer Agent. State Street Bank & Trust Company is the transfer agent for
the funds.
Custodian. Each fund's portfolio securities are held pursuant to a master
custodian agreement between the trust and State Street Bank & Trust Company.
Under the custodian agreement, the custodian performs custody, portfolio and
fund accounting services.
Independent Public Accountants. The trustees have selected Deloitte & Touche
LLP as the funds' independent public accountants. Deloitte & Touche LLP audits
and renders opinions on the funds' annual financial statements and reviews the
funds' annual federal income tax returns.
31
<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 six funds described in this statement of
additional information. 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
32
<PAGE>
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 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.
33
<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 as of the close
of the London exchange (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,
34
<PAGE>
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 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.
Each participating insurance company receives orders from its variable annuity
contract and variable life insurance policy owners to purchase or redeem shares
of the funds each business day. That night, all orders received by that
insurance company on that business day are aggregated, and the insurance company
places a net purchase or redemption order for shares of one or more funds the
morning of the next business day. These orders are normally executed at the NAV
that was computed at the close of the previous business day in order to provide
a match between the variable contract and policy owners' orders to the insurance
companies and the insurance companies' orders to a fund. In some cases, an
insurance company's orders for fund shares may be executed at the NAV next
computed after the order is actually transmitted to a 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.
35
<PAGE>
Taxes
Each fund is treated as a separate entity for federal income tax purposes. Each
fund has elected or intends to elect to be treated, and intends to qualify 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 ("net
capital gain"), 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
unless a one year start up period exception is available to each separate
account investing in the 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
36
<PAGE>
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 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.
Dividends from net capital gain (as defined above) are classified as long-term
capital gain and dividends from investment company taxable income (generally,
all of a fund's taxable income and net realized capital gains other than its net
capital gain) are classified as ordinary income for federal income tax purposes,
whether paid in cash or reinvested in additional shares. 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.
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 above.
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
37
<PAGE>
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 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.
38
<PAGE>
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 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, a 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 funds may have to sell
portfolio securities under disadvantageous circumstances to generate cash, or
borrow cash, to satisfy the distribution requirements described above as a
result of participation in some of these transactions and derivatives.
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.
39
<PAGE>
Brokerage Allocation
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the adviser or subadviser and
the officers of the trust pursuant to recommendations made by the portfolio
managers. 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 or subadviser, 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 or subadviser. The receipt of research information is not expected
to reduce significantly the expenses of the adviser or subadviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit Sun Life of Canada or other advisory clients of the adviser or
subadviser, and conversely, brokerage commissions and spreads paid by other
advisory clients of the adviser or subadviser 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 and subadviser's officers will be primarily responsible for the
allocation of each fund's brokerage business, those policies and practices 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 or subadviser that the price is
reasonable in light of
40
<PAGE>
the services provided viewed either in terms of the specific transaction
involved in the adviser's or subadviser's overall duties to the accounts or the
policies that the trustees may adopt from time to time.
Other investment advisory clients advised by the adviser or subadviser 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 or subadviser may
average the transactions as to price and allocate the amount of available
investments in a manner which the adviser or subadviser 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 or subadviser 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.
For the period ended December 31, 1998, each of the following funds paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
MONEY MARKET FUND INVESTMENT GRADE BOND FUND REAL ESTATE FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
$0 $0 $6,262
- -------------------------------------------------------------------------------------------------------
</TABLE>
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Calculation of Performance Information
Yield (Investment Grade Bond Fund). The yield of Investment Grade Bond 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~~BOLD (BOLD[BOLD ({a - b}OVER cd BOLD) +1 {BOLD ]} SUP 6 -1 BOLD)
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.
The yield of Investment Grade Bond Fund for the 30-day period ended June 30,
1999 was 6.29%.
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. The
yield of Money Market Fund for the seven-day period ended June 30, 1999 was
4.41%
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
The effective yield of Money Market Fund for the seven-day period ended
June 30, 1999 was 4.50%
42
<PAGE>
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 = NROOT n ERV/P - 1 formula:
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.
The average annual total return for each of the following funds for the period
since inception to June 30, 1999 was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Fund Inception to 6/30/99(1)
- -------------------------------------------------------------------
<S> <C>
Money Market Fund 4.36%
- -------------------------------------------------------------------
Investment Grade Bond Fund <0.78>%
- -------------------------------------------------------------------
Real Estate Fund 6.79%
- -------------------------------------------------------------------
</TABLE>
(1) Inception of each fund was December 7, 1998.
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.
Total returns and yields quoted for the funds include each fund's expenses, but
may not include charges and expenses attributable to any particular insurance
product. Since shares of the funds may be purchased only through variable
annuity contracts and variable life insurance policies, you should carefully
review the prospectus of the insurance product you have chosen for information
on relevant charges and expenses. Excluding these charges from quotations of
each fund's performance has the effect
43
<PAGE>
of increasing the performance quoted. You should bear in mind the effect of
these charges when comparing a fund's performance to that of other mutual funds.
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.
44
<PAGE>
Financial Statements
Each of Money Market Fund's, Investment Grade Bond Fund's and Real Estate
Fund's financial statements are included in the annual report for the period
ended December 31, 1998 and semi-annual report dated June 30, 1999. Both the
annual report and the semi-annual report are incorporated by reference into this
statement of additional information. The annual report is incorporated by
reference into this statement of additional information in reliance upon the
report of Deloitte & Touche LLP, independent public accountants, as experts.
45
<PAGE>
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.
1
<PAGE>
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.
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.
2
<PAGE>
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
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.
3
<PAGE>
SUN CAPITAL ADVISERS TRUST
PART C. OTHER INFORMATION
Item 23. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
(a)(1) Agreement and Declaration of Trust, dated July 13, 1999/1/
(a)(2) Amendment to the Agreement and Declaration of Trust, dated June 8, 1999/4/
(b) By-Laws, dated July 13, 1998/1/
(c) Not Applicable
(d)(1) Investment Advisory Agreement/2/
(d)(2) Form of Investment Advisory Agreement between Sun Capital Advisers, Inc. and Sun Capital
Advisers Trust, on behalf of its series, Sun Capital Investors Foundation Fund/4/
(d)(3) Form of Investment Advisory Agreement between Sun Capital Advisers, Inc. and Sun Capital
Advisers Trust, on behalf of its series, Sun Capital Select Equity Fund/4/
(d)(4) Form of Investment Advisory Agreement between Sun Capital Advisers, Inc. and Sun Capital
Advisers Trust, on behalf of its series, Sun Capital Blue Chip Mid Cap Fund/4/
(d)(5) Form of Investment Advisory Agreement for Subadviser by and among Sun Capital Advisers,
Inc., Wellington Management Company LLP and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Investors Foundation Fund/4/
(d)(6) Form of Investment Advisory Agreement for Subadviser by and among Sun Capital Advisers,
Inc., Wellington Management Company LLP and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Select Equity Fund/4/
(d)(7) Form of Investment Advisory Agreement for Subadviser by and among Sun Capital Advisers,
Inc., Wellington Management Company LLP and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Blue Chip Mid Cap Fund/4/
(e) Not Applicable
(f) Not Applicable
(g)(1) Custody Agreement/3/
(h)(1) Administration Agreement/3/
(h)(2) Transfer Agency and Shareholder Service Agreement/3/
(i) Opinion and Consent of Counsel/2/
(j) Consent of Independent Public Accountants*
(k) Not Applicable
(l)(1) Share Purchase Agreement for Money Market Fund/2/
(l)(2) Share Purchase Agreement for Sun Capital Real Estate Fund/2/
(l)(3) Share Purchase Agreement for Sun Capital Investment Grade Bond Fund/2/
(m) Not Applicable
(n) Financial Data Schedules*
(o) Not Applicable
(p)(1) Power of Attorney (Anderson, Jones, Paddock, Prieur, Searcy)/2/
(p)(2) Power of Attorney (Alban)/3/
</TABLE>
* Filed herewith.
/1/Filed as an exhibit to Registrant's Registration Statement on July 15, 1998
and incorporated by reference herein.
/2/Filed as an exhibit to Pre-Effective Amendment No. 1 on November 5, 1998
and incorporated by reference herein.
/3/Filed as an exhibit to Post-Effective Amendment No. 1 on April 27, 1999 and
incorporated by reference herein.
/4/Filed as an exhibit to Post-Effective Amendment No. 2 on June 17, 1999 and
incorporated by reference herein.
<PAGE>
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 generally 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, officer, underwriter or affiliated person of the Registrant is
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
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.
Under each Investment Advisory Agreement for Subadviser, Section 6 provides
indemnification for the subadviser except that the subadviser will be liable
for losses due to (a) the subadviser's causing a subadvised fund to violate any
federal or state law, rule or regulation or any subadvised fund's investment
policy or restriction, (b) the Subadviser's causing the subadvised fund to fail
the diversification requirements of the Internal Revenue Code, or (c) the
subadviser's willful misfeasance, bad faith or negligence generally in the
performance of its duties or its reckless disregard of its obligations and
duties under the subadvisory agreement.
Each Investment Advisory Agreement for Subadviser provides that the adviser
shall indemnify the subadviser against any loss resulting from (a) the
adviser's wilful misfeasance, bad faith or negligence generally in the
performance of its duties or the reckless disregard of its obligations or
duties under the subadvisory agreement and (b) the adviser's breach of any duty
or warranty under the agreement or any inaccurate representation. However, the
subadvisory agreement does not indemnify the subadviser from liability for its
own willful misfeasance, bad faith or negligence in the performance of its
duties or reckless disregard of such duties.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
All of the information required by this item is set forth in the Forms ADV of
the Registrant's investment adviser, Sun Capital Advisers, Inc., (File No. 801-
39938) and the subadviser to certain of its series, Wellington Management
Company LLP (File No. 801-15908). The following sections of the Forms ADV of
Sun Capital Advisers, Inc. and Wellington Management Company LLP 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.
<PAGE>
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 Wellington Management Company LLP at 75 State Street, Boston,
Massachusetts 02109. Records relating to the duties of the Registrant's
custodian and transfer agent are maintained by State Street Bank & Trust
Company at 225 Franklin Street, Boston, Massachusetts 02110.
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that
it meets all of the requirements for effectiveness of this registration
statement under Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-effective Amendment No. 3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Wellesley, The
Commonwealth of Massachusetts, on the 27th day of August, 1999.
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
Post-effective Amendment No. 3 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ C. James Prieur* Trustee August 27, 1999
-------------------------------------
C. James Prieur
/s/ James M.A. Anderson Chief Executive Officer August 27, 1999
------------------------------------- and Trustee
James M.A. Anderson
/s/ James F. Alban* Chief Financial Officer August 27, 1999
-------------------------------------
James F. Alban
/s/ Graham E. Jones* Trustee August 27, 1999
-------------------------------------
Graham E. Jones
/s/ Anthony C. Paddock* Trustee August 27, 1999
-------------------------------------
Anthony C. Paddock
/s/ William N. Searcy* Trustee August 27, 1999
-------------------------------------
William N. Searcy
</TABLE>
*By: /s/ James M.A. Anderson
------------------------
James M.A. Anderson
Power-of-Attorney
<PAGE>
Exhibit Index
Exhibit
Number
(j) Consent of Independent Public Accountants
(n) Financial Data Schedules
<PAGE>
Exhibit J
INDEPENDENT PUBLIC ACCOUNTANT'S CONSENT
We consent to the incorporation by reference in this Post Effective Amendment
No. 3 to Registration Statement Nos. 333-59093; 811-08879 of Sun Capital
Advisers Trust on Form N-1A of our report dated February 4, 1999, appearing in
the annual report to shareholders for the period from December 7, 1998
(commencement of operations) to December 31, 1998, and to the references to us
under the headings "Financial Highlights" and "Additional Information" in the
Prospectus and "Independent Public Accountants" in the Statement of Additional
Information which are a part of this Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 25, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001065698
<NAME> SUN CAPITAL REAL ESTATE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 5,604,809
<INVESTMENTS-AT-VALUE> 5,670,864
<RECEIVABLES> 49,795
<ASSETS-OTHER> 14,946
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,735,605
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,217
<TOTAL-LIABILITIES> 25,217
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,534,983
<SHARES-COMMON-STOCK> 554,322
<SHARES-COMMON-PRIOR> 500,721
<ACCUMULATED-NII-CURRENT> 133,095
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23,745)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 66,055
<NET-ASSETS> 5,710,388
<DIVIDEND-INCOME> 162,930
<INTEREST-INCOME> 1,736
<OTHER-INCOME> 0
<EXPENSES-NET> 32,096
<NET-INVESTMENT-INCOME> 132,570
<REALIZED-GAINS-CURRENT> (23,745)
<APPREC-INCREASE-CURRENT> 143,282
<NET-CHANGE-FROM-OPS> 252,107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57,281
<NUMBER-OF-SHARES-REDEEMED> (7,713)
<SHARES-REINVESTED> 4,033
<NET-CHANGE-IN-ASSETS> 780,091
<ACCUMULATED-NII-PRIOR> 40,930
<ACCUMULATED-GAINS-PRIOR> (77,624)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79,413
<AVERAGE-NET-ASSETS> 5,177,884
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.21
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.30
<EXPENSE-RATIO> 1.25
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001065698
<NAME> SUN CAPITAL INVESTMENT GRADE BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 12,794,477
<INVESTMENTS-AT-VALUE> 12,462,953
<RECEIVABLES> 216,599
<ASSETS-OTHER> 29,805
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,709,357
<PAYABLE-FOR-SECURITIES> 128,455
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,736
<TOTAL-LIABILITIES> 157,191
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,953,983
<SHARES-COMMON-STOCK> 1,302,426
<SHARES-COMMON-PRIOR> 1,005,238
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (70,293)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (331,524)
<NET-ASSETS> 12,552,166
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 353,385
<OTHER-INCOME> 0
<EXPENSES-NET> 40,359
<NET-INVESTMENT-INCOME> 313,026
<REALIZED-GAINS-CURRENT> (70,648)
<APPREC-INCREASE-CURRENT> (305,011)
<NET-CHANGE-FROM-OPS> (62,633)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (313,026)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 278,650
<NUMBER-OF-SHARES-REDEEMED> (13,365)
<SHARES-REINVESTED> 31,903
<NET-CHANGE-IN-ASSETS> 2,526,113
<ACCUMULATED-NII-PRIOR> 34,216
<ACCUMULATED-GAINS-PRIOR> 355
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 108,345
<AVERAGE-NET-ASSETS> 10,851,527
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> (0.33)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.64
<EXPENSE-RATIO> .75
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001065698
<NAME> SUN CAPITAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 4,778,097
<INVESTMENTS-AT-VALUE> 4,778,097
<RECEIVABLES> 33,614
<ASSETS-OTHER> 7,722
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,819,433
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,581
<TOTAL-LIABILITIES> 56,581
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,762,979
<SHARES-COMMON-STOCK> 4,762,979
<SHARES-COMMON-PRIOR> 2,509,680
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (127)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,762,852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 81,297
<OTHER-INCOME> 0
<EXPENSES-NET> 10,697
<NET-INVESTMENT-INCOME> 70,600
<REALIZED-GAINS-CURRENT> (100)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 70,500
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (70,600)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,099,998
<NUMBER-OF-SHARES-REDEEMED> (917,299)
<SHARES-REINVESTED> 70,600
<NET-CHANGE-IN-ASSETS> 2,253,199
<ACCUMULATED-NII-PRIOR> 7,681
<ACCUMULATED-GAINS-PRIOR> (27)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 57,086
<AVERAGE-NET-ASSETS> 3,318,031
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.0
<EXPENSE-RATIO> .65
</TABLE>
