<PAGE>
No. 333-59093
811-08879
As filed with the Securities and Exchange Commission on April 28, 2000
Form N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. [5]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [6]
(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)
Approximate date of Proposed Public Offering: As soon as possible after this
Amendment becomes effective.
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):
immediately upon filing pursuant to paragraph (b)
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X on May 1, 2000 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on [date] pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on May 1, 2000 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
<PAGE>
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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 Real Estate Fund
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Investors Foundation Fund
Sun Capital Select Equity Fund
Sun Capital Davis Financial Fund
Sun Capital Davis Venture Value Fund
Sun Capital Value Equity Fund
Sun Capital Value Managed Fund
Sun Capital Value Mid Cap Fund
Sun Capital Value Small Cap Fund
Prospectus
May 1, 2000
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>
<S> <C>
The Funds' Goals and Strategies............................................ 2
Money Market Fund....................................................... 2
Investment Grade Bond Fund.............................................. 3
Real Estate Fund........................................................ 5
Blue Chip Mid Cap Fund.................................................. 7
Investors Foundation Fund............................................... 8
Select Equity Fund...................................................... 9
Davis Financial Fund.................................................... 10
Davis Venture Value Fund................................................ 12
Value Equity Fund....................................................... 13
Value Managed Fund...................................................... 14
Value Mid Cap Fund...................................................... 16
Value Small Cap Fund.................................................... 17
More About the Funds' Investments ......................................... 18
Investment Grade Bond Fund.............................................. 18
Blue Chip Mid Cap Fund, Investors Foundation Fund, Select Equity Fund,
Davis Financial Fund, Davis Venture Value Fund, Value Equity Fund,
Value Managed Fund, Value Mid Cap Fund, Value Small Cap Fund .......... 18
Blue Chip Mid Cap Fund, Investors Foundation Fund, Select Equity Fund .. 19
Real Estate Fund........................................................ 19
All Funds other than Money Market Fund ................................. 20
All Funds............................................................... 20
The Investment Adviser and Subadviser...................................... 21
About the Adviser....................................................... 21
About Wellington Management Company, LLP................................ 22
Wellington Management's Prior Performance for Similar Accounts.......... 22
About Davis Selected Advisers, L.P. .................................... 23
Davis Selected Advisers' Prior Performance for Similar Accounts ........ 24
About OpCap Advisors ................................................... 25
OpCap Advisors' Prior Performance for Similar Accounts ................. 25
Portfolio Managers...................................................... 28
Purchase and Redemption Information........................................ 30
Buying and Redeeming Shares............................................. 30
Automatic Transactions.................................................. 30
Valuation of Shares..................................................... 30
Dividends and Distributions............................................. 30
Taxes................................................................... 30
Fund Details............................................................... 31
Financial Highlights ...................................................... 32
</TABLE>
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 Ratings in a rating agency's two highest short-term rating
credit categories or equivalent quality for unrated securities.
quality
Maximum Average dollar weighted portfolio maturity of 90 days or less.
maturity Maturity of 397 days or less for individual securities.
How
investmentsThe adviser selects for the fund's portfolio those securities that
are appear to offer the best relative value based on an analysis of
selected their credit quality, interest rate sensitivity, yields and
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.
The fund may be appropriate for investors who:
Who may
want to . seek liquidity and stability of principal
invest
. 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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1
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The Funds' Goals And Strategies
. Money Market Fund
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Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Merrill Lynch 3-month T-Bill Index ("Merrill Lynch T-Bill Index"). Past
performance does not necessarily indicate how the fund will perform in the
future. Performance figures do not reflect expenses incurred from investing
through an insurance company separate account which funds certain variable
annuity and variable life insurance contracts ("Separate Account"). Please
refer to the applicable Separate Account prospectus for more information on
expenses.
<TABLE>
<S> <C> <C>
Quarterly returns:
Highest: 1.27% in 4th quarter 1999
Lowest: 1.06% in 1st quarter 1999
</TABLE>
[EDGAR REPRESENTATION OF DATA POINTS IN PRINTED GRAPHIC]
1999 4.63%
<TABLE>
<S> <C>
The bar chart shows the performance of the fund's
shares for each full calendar year since its inception on
December 7, 1998.
</TABLE>
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
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<S> <C> <C>
One year Since inception*
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Fund 4.63% 4.63%
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Merrill Lynch T-Bill Index 4.85% 4.79%
</TABLE>
* Inception means 12/7/98 for the Sun Capital Money Market Fund and the Merrill
Lynch T-Bill Index.
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2
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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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3
<PAGE>
The Funds' Goals And Strategies
. Investment Grade Bond Fund
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Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Lehman Brothers Aggregate Bond Index. Past performance does not necessarily
indicate how the fund will perform in the future. Performance figures do not
reflect expenses incurred from investing through an insurance company separate
account which funds certain variable annuity and variable life insurance
contracts ("Separate Account"). Please refer to the applicable Separate Account
prospectus for more information on expenses.
<TABLE>
<S> <C> <C>
Quarterly returns:
Highest: 0.41% in 1st quarter 1999
Lowest: (0.89%) in 2nd quarter 1999
</TABLE>
[EDGAR REPRESENTATION OF DATA POINTS IN PRINTED GRAPHIC]
1999 (0.56%)
<TABLE>
<S> <C>
The bar chart shows the performance of the fund's
shares for each full calendar year since its inception on
December 7, 1998.
</TABLE>
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
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<S> <C> <C>
One year Since inception*
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Fund (0.56%) (0.48%)
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Lehman Brothers Aggregate
Bond Index (0.82%) (0.53%)
</TABLE>
* Inception means 12/7/98 for the Sun Capital Investment Grade Bond Fund and
the Lehman Brothers Aggregate Bond Index.
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4
<PAGE>
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 The adviser allocates the fund's investments across various
investmentsgeographic areas, REIT managers and property types, such as
are apartments, retail properties, office buildings, hotels,
selected 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
fund . The U.S. or a local real estate market declines due to economic
conditions, supply/demand imbalances (e.g., overbuilding and
high vacancy rates) reduced or regulated rents or other causes.
. Interest rates go up. This can affect the availability or cost
of financing for property acquisitions and reduce the value of a
REIT's fixed income investments.
. The values of properties owned by a REIT are hurt by property
tax increases, zoning changes, other governmental actions,
environmental liabilities, natural disasters or increased
operating expenses.
. A REIT in the fund's portfolio is, or is perceived by the market
to be, poorly managed.
. The market for REITs goes down or is less favored than other
stock market sectors or types of investments.
. The adviser's judgments about the relative values of REIT
securities selected for the fund's portfolio prove to be wrong.
Many REITs are small capitalization companies that may experience
more price volatility, be less liquid and have more limited
financial resources than large capitalization companies.
Diversification
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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5
<PAGE>
The Funds' Goals And Strategies
. Real Estate Fund
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Fund performance
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. The table shows how the fund's
average annual returns for different calendar periods compare to the return of
the Morgan Stanley Real Estate Investment Trust Index ("Morgan Stanley REIT
Index"). Past performance does not necessarily indicate how the fund will
perform in the future. Performance figures do not reflect expenses incurred
from investing through an insurance company separate account which funds
certain variable annuity and variable life insurance contracts ("Separate
Account"). Please refer to the applicable Separate Account prospectus for more
information on expenses.
<TABLE>
<S> <C> <C>
Quarterly returns:
Highest: 10.87% in 2nd quarter 1999
Lowest: (8.16%) in 3rd quarter 1999
</TABLE>
[EDGAR REPRESENTATION OF DATA POINTS IN PRINTED GRAPHIC]
1999 (3.98%)
<TABLE>
<S> <C>
The bar chart shows the performance of the fund's
shares for each full calendar year since its inception on
December 7, 1998.
</TABLE>
Average Annual Total Returns
(for the periods ended December 31, 1999)
<TABLE>
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<S> <C> <C>
One year Since inception*
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Fund (3.98%) (4.37%)
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Morgan Stanley REIT Index (4.54%) (6.28%)
</TABLE>
* Inception means 12/7/98 for the Sun Capital Real Estate Fund and the Morgan
Stanley REIT Index.
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6
<PAGE>
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 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 specific securities
within industries or 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 . U.S. stock markets go down, or perform poorly relative to other
fund 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
Fund Performance information is not provided because the fund had less
performancethan a full calendar year of investment operations.
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7
<PAGE>
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.
How The fund is broadly diversified by industry and company. The fund
investmentsis managed to have an overall risk profile over the long term
are similar to that of the S&P 500 Index. The fund does not, however,
selected seek to replicate the S&P 500 Index. From time to time the fund's
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
Fund performance
Performance information is not provided because the fund had less
than a full calendar year of investment operations.
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8
<PAGE>
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
Fund Performance information is not provided because the fund had less
performancethan a full calendar year of investment operations.
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9
<PAGE>
The Funds' Goals And Strategies
. Davis Financial Fund
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Investment goalGrowth of capital. The fund's board may change this goal
without obtaining the approval of the fund's shareholders.
Key investments and strategies
The fund invests primarily in the common stock of financial
companies. During normal market conditions, at least half of
the fund's assets are invested in companies that are
"principally engaged" in financial services.
A company is "principally engaged" in financial services if it
owns financial services related assets that constitute at least
50% of the value of all of its assets, or if it derives at
least 50% of its revenues from providing financial services.
Companies in the financial services group of industries
include:
. commercial banks
. industrial banks
. savings institutions
. finance companies
. diversified financial services companies
. investment banking firms
. securities brokerage houses
. investment advisory companies
. leasing companies
. insurance companies
. other companies providing similar services
How investments are selected
Davis Selected Advisers' investment philosophy is to select
common stock of quality overlooked growth companies at value
prices and to hold them for the long-term. Davis uses extensive
research to seek to identify overlooked companies with
substainable growth rates that currently sell at modest price-
earnings multiples.
In selecting securities for the fund, Davis looks for companies
with some or all of the following characteristics:
. Strong, experienced management with a proven track record
. Significant management ownership of the company
. Strong returns on capital
. Lean expense structure
. Dominant or growing market share in a growing market
. Record of successful acquisitions to expand operations and
markets
. Strong balance sheet
. Competitive products or services
. Successful international operations
. Innovation, including successful use of technology
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10
<PAGE>
The Funds' Goals And Strategies
. Davis Financial Fund (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investments in the fund or
the fund could perform less well than other possible
investments if any of the following occurs:
. The stock market goes down.
. The market undervalues the stocks held by the fund for
longer than expected.
. Companies in the fund's portfolio could fail to achieve
earnings estimates or other market expectations, causing
their stock prices to fall.
Since the fund focuses its investments in the financial
services group of industries, it is particularly vulnerable to
the risks of those industries. In particular,
. Financial services companies may suffer a setback if
regulators change the rules under which they operate.
. Unstable interest rates may have a disproportionate effect
on financial services companies.
. The fund may invest in financial services companies which
have loan portfolios concentrated in particular regions or
industries, such as a high level of loans to regional real
estate developers, making these banks vulnerable to
economic conditions that affect that region or industry.
. Some financial services companies may suffer from the
increasingly competitive environment in which they
operate.
Who may want to invest
The fund may be appropriate for investors who:
. are seeking long-term growth of capital
. believe that the financial services industry offers
attractive long-term growth opportunities
. are investing for the long term (five years or more)
. are willing to accept the risks of the stock market
The fund may not be appropriate for investors who:
. are worried about the possibility of sharp price swings
and dramatic price declines
. are interested in earning current income
. do not wish to invest in a concentrated portfolio of
financial services companies
. are investing for the short-term (less than five years)
Fund performance
Performance information is not provided because the fund had
less than a full calendar year of investment operations.
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11
<PAGE>
The Funds' Goals And Strategies
. Davis Venture Value Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investment goalGrowth of capital. The fund's board may change this goal
without obtaining the approval of the fund's shareholders.
Key investments and strategies
The fund invests primarily in the common stock of U.S.
companies with market capitalizations of at least $5 billion.
How investments are selected
Davis Selected Advisers' investment philosophy is to select
common stock of quality overlooked growth companies at value
prices and to hold them for the long-term. Davis uses extensive
research to seek overlooked companies with sustainable growth
rates that currently sell at modest price-earnings multiples.
In selecting securities for the fund, Davis looks for companies
with some or all of the following characteristics:
. Strong, experienced management with a proven track record
. Significant management ownership of the company
. Strong returns on capital
. Lean expense structure
. Dominant or growing market share in a growing market
. Record of successful acquisitions to expand operations and
markets
. Strong balance sheet
. Competitive products or services
. Successful international operations
. Innovation, including successful use of technology
While Davis plans on holding companies for the long-term, it
will consider selling a company if it no longer exhibits the
characteristics that Davis believes foster sustainable long-
term growth, minimize risk and enhance the potential for
superior long-term returns.
Principal risks of investing in the fund
Investors could lose money on their investments in the fund or
the fund could perform less well than other possible
investments if any of the following occurs:
. The stock market goes down.
. The market undervalues the stocks held by the fund for longer
than expected.
. Companies in the fund's portfolio could fail to achieve
earnings estimates or other market expectations, causing
their stock prices to fall.
Who may want to invest
The fund may be appropriate for investors who:
. are seeking long-term growth of capital
. are more comfortable with established, well-known companies
. are investing for the long-term (five years or more)
. are willing to accept the risks of the stock market
The fund may not be appropriate for investors who:
. are worried about the possibility of sharp price swings and
dramatic price declines
. are interested in earning current income
. are investing for the short term (less than five years)
Fund performance
Performance information is not provided because the fund had
less than a full calendar year of investment operations.
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12
<PAGE>
The Funds' Goals and Strategies
. Value Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investment Long-term capital appreciation. The fund's board may change this
goals goal without obtaining the approval of the fund's shareholders.
Key The fund invests primarily in a diversified portfolio of equity
investmentssecurities listed on the New York Stock Exchange. Under normal
and conditions, the fund invests at least 65% of its total assets in
strategies such equity securities.
How
investments
are selected
OpCap Advisors applies principles of value investing to choose
investments for the fund. Using fundamental company analysis OpCap
Advisors selects securities it believes are undervalued by the
marketplace. Fundamental company analysis involves intensive
evaluation of historical financial data including:
. company financial statements
. market share analysis
. unit volume growth
. barriers to entry
. pricing policies
. management record
When evaluating equity securities, OpCap Advisors believes that
there are two major components of value:
. a company's ability to generate earnings that contribute to
shareholder value; and
. market undervaluation great enough to offer the potential for
upside reward with what it believes is modest downward risk
In selecting equity securities for the fund, OpCap Advisors seeks
companies that have one or more of the following characteristics:
. substantial and growing discretionary cash flow
. strong shareholder value-oriented management
. valuable consumer or commercial franchises
. high returns on capital
. favorable price to intrinsic value relationship
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 stock market goes down.
fund . Value stocks fall out of favor with the stock market.
. The market undervalues the stocks held by the fund for longer
than expected.
. The stocks purchased by the fund turn out not to be undervalued.
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
Fund Performance information is not provided because the fund had less
performancethan a full calendar year of investment operations.
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13
<PAGE>
The Funds' Goals And Strategies
. Value Managed Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investment Growth of capital over time. The fund's board may change this goal
goals without obtaining the approval of the fund's shareholders.
Key The fund invests primarily in a portfolio consisting of common
investmentsstocks, bonds and cash equivalents. OpCap Advisors will vary the
and allocation of the fund's investments in these assets depending on
strategies its assessments of the relative values of such investments.
The majority of the stocks purchased by the fund are listed on a
domestic stock exchange or traded in the U.S. over-the-counter
market. The fund may also purchase U.S. government securities,
investment grade corporate bonds and high quality money market
securities. The fund normally invests mainly in equity securities.
The fund may invest up to 100% of its assets in debt securities
but will do so only if equity securities are not an attractive
investment.
How OpCap Advisors applies principles of value investing to choose
investmentsinvestments for the fund. Using fundamental company analysis,
are OpCap Advisors selects securities it believes are undervalued by
selected the marketplace. Fundamental company analysis involves intensive
evaluation of historic financial data including:
. company financial statements
. market share analysis
. unit volume growth
. barriers to entry
. pricing policies
. management record
When evaluating equity securities, OpCap Advisors believes that
there are two major components of value:
. a company's ability to generate earnings that contribute to
shareholder value; and
. market undervaluation great enough to offer the potential for
upside reward with what it believes is modest downward risk
In selecting equity securities for the fund, OpCap Advisors seeks
companies that have one or more of the following characteristics:
. substantial and growing discretionary cash flow
. strong shareholder value-oriented management
. valuable consumer or commercial franchises
. favorable price to intrinsic value relationship
Principal
risks of Investors could lose money on their investments in the fund or the
investing value of the fund's investments in equity securities and thus the
in the value of the fund's shares could decline if any of the following
fund occurs:
. The stock market goes down.
. Value stocks fall out of favor with the stock market.
. The market undervalues the stocks held by the fund for longer
than expected.
. The stocks purchased by the fund turn out not to be undervalued.
. OpCap Advisors' decisions about allocation among different asset
classes may prove to be incorrect.
In addition the value of the fund's investments in fixed income
securities and thus the value of the fund's shares could decline
if any of the following occurs:
.Interest rates rise and the bond market goes down.
.Issuers of debt instruments cannot meet their obligations.
.Bond issuers call bonds selling at a premium to their call price
before the maturity date.
. Loans securing mortgage-backed obligations prepay principal more
rapidly than expected, requiring the fund to reinvest these
prepayments at lower rates.
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14
<PAGE>
The Funds' Goals And Strategies
. Value Managed Fund (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Who may The fund may be appropriate for investors who:
want to . are seeking to invest in a fund that includes both equity and
invest fixed income securities
. are looking for an investment with potentially greater return
but higher risk than a fund that invests exclusively in fixed
income securities
. are willing to accept the risks of both the stock market and
potentially, the bond market
The fund may not be appropriate for investors who:
. are uncomfortable with the risks of the stock market
. seek stability of principal
Fund Performance information is not provided because the fund had less
performancethan a full calendar year of investment operations.
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15
<PAGE>
The Funds' Goals and Strategies
. Value Mid Cap Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investment Long-term capital appreciation. The fund's board may change this
goals goal without obtaining the approval of the fund's shareholders.
Key
investmentsThe fund invests primarily in equity securities of companies with
and market capitalizations between $500 million and $8 billion at the
strategies time of purchase. The majority of the stocks purchased by the fund
are listed on a domestic stock exchange or traded in the U.S.
over-the-counter market. The fund may also purchase securities
listed on other U.S. or foreign securities exchanges or traded in
the U.S. or foreign over-the-counter markets.
OpCap Advisors believes that mid cap companies generally are
studied by fewer analysts than are large cap companies which can
lead to inefficiencies in the pricing of these stocks and can
create attractive pricing opportunities. Large institutional
investors also may not want to hold positions in mid cap companies
which can lead to further inefficiencies and opportunities in the
pricing of these stocks. Opportunities for value creation for mid
cap companies could result from dominating their niches, erecting
competitive barriers, regional or product line expansion or sale
of the company.
How
investments
are selected
OpCap Advisors applies principles of value investing to choose
investments for the fund. Using fundamental company analysis OpCap
Advisors selects securities it believes are undervalued by the
marketplace. Fundamental company analysis involves intensive
evaluation of historic financial data including:
. company financial statements
. market share analysis
. unit volume growth
. barriers to entry
. pricing policies
. management record
When evaluating equity securities, OpCap Advisors believes that
there are two major components of value:
. a company's ability to generate earnings that contribute to
shareholder value; and
. market undervaluation great enough to offer the potential for
upside reward with what it believes is modest downward risk
In selecting equity securities for the fund, OpCap Advisors seeks
companies that have one or more of the following characteristics:
. substantial and growing discretionary cash flow
. strong shareholder value-oriented management
. valuable consumer or commercial franchises
. high returns on capital
. favorable price to intrinsic value relationship
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 stock market goes down.
fund . Value stocks fall out of favor with the stock market.
. The market undervalues the stocks held by the fund for longer
than expected.
. The stocks purchased by the fund turn out not to be undervalued.
. Mid cap securities, which generally are more volatile and less
liquid than large cap securities, decline in value more steeply
or become less liquid than expected.
The fund may be appropriate for investors who:
Who may . are seeking to participate in the long-term growth potential of
want to mid cap companies
invest . 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 cap companies
. are willing to accept the risks of the stock market and the
special risks and potential long-term rewards of investing in
mid cap companies with limited track records
The fund may not be appropriate for investors who:
. are uncomfortable with the risks of the stock market
. seek stability of principal
Fund Performance information is not provided because the fund had less
performancethan a full calendar year of investment operations.
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16
<PAGE>
The Funds' Goals and Strategies
. Value Small Cap Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investment Capital appreciation. The fund's board may change this goal
goals without obtaining the approval of the fund's shareholders.
Key
investmentsThe fund invests primarily in a diversified portfolio of equity
and securities of companies with market capitalizations of under $1.5
strategies billion at time of purchase. The majority of the stocks purchased
by the fund are listed on a domestic stock exchange traded in the
U.S. over-the-counter market.
How
investments
are selected
OpCap Advisors applies principles of value investing to choose
investments for the fund. Using fundamental company analysis OpCap
Advisors selects securities it believes are undervalued by the
marketplace. Fundamental company analysis involves intensive
evaluation of historic financial data including:
. company financial statements
. market share analysis
. unit volume growth
. barriers to entry
. pricing policies
. management record
When evaluating equity securities, OpCap Advisors believes that
there are two major components of value:
. a company's ability to generate earnings that contribute to
shareholder value; and
. market undervaluation great enough to offer the potential for
upside reward with what it believes is modest downward risk
In selecting equity securities for the fund, OpCap Advisors seeks
companies that have one or more of the following characteristics:
. substantial and growing discretionary cash flow
. high returns on capital
. strong shareholder value-oriented management
. valuable consumer or commercial franchises
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 stock market goes down.
fund . Value stocks fall out of favor with the stock market.
. The market undervalues the stocks held by the fund for longer
than expected.
. The stocks purchased by the fund turn out not to be undervalued.
. Small cap securities, which generally are more volatile and less
liquid than large cap securities, decline in value more steeply
or become less liquid than expected.
Who may The fund may be appropriate for investors who:
want to . are seeking to participate in the long-term growth potential of
invest small cap companies
. 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 or mid cap
companies
. are willing to accept the risks of the stock market and the
special risks and potential long-term rewards of investing in
small cap companies with limited track records
The fund may not be appropriate for investors who:
. are uncomfortable with the risks of the stock market
. seek stability of principal
Fund Performance information is not provided because the fund had less
performancethan a full calendar year of investment operations.
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17
<PAGE>
More About The Funds' Investments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
. 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.
. Blue Chip Mid Cap Fund
. Investors Foundation Fund
. Select Equity Fund
. Davis Financial Fund
. Davis Venture Value Fund
. Value Equity Fund
. Value Managed Fund
. Value Mid Cap Fund
. Value Small Cap Fund
Permitted 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.
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. Value Equity Fund, Value
Managed Fund, Value Mid Cap Fund and Value Small Cap Fund may each
also invest in securities traded in foreign over-the-counter
markets. Each of Value Equity Fund, Value Managed Fund, Value Mid
Cap Fund and Value Small Cap Fund may invest up to 100% of its
assets in foreign securities. A fund's investments in foreign
securities or ADRs involve greater risk than investments in
securities of U.S. issuers.
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18
<PAGE>
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.
. Blue Chip Mid Cap Fund
. Investors Foundation Fund
. Select Equity Fund
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.
. 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.
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19
<PAGE>
More About The Funds' Investments
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All Funds other than Money Market Fund
A Derivative contracts Each fund may, but need not, use derivative
derivative contracts, such as futures and options on securities, securities
contract indices, interest rates or currencies, or options on these
will futures, to hedge against the economic impact of adverse changes
obligate in the market value of portfolio securities, because of changes in
or entitle securities market prices, interest rates or currencies. Investing
the fund in the individual bonds and sectors considered most attractive by
to deliver the adviser may not necessarily enable Investment Grade Bond Fund
or receive to achieve its target duration. This fund may use derivative
an asset contracts to increase or decrease the fund's duration. In
or a cash addition, Real Estate Fund may use derivative contracts to manage
payment the interest rate risk associated with both its real estate and
that is fixed income investments and to stay fully invested in stocks when
based on it has a significant cash position.
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.
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, Blue
Chip Mid Cap Fund, Investors Foundation Fund and Select Equity
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. To
the extent that a fund might adopt a temporary defensive position,
and over the course of its duration, the fund may not meet its
stated investment goal. Money Market Fund will not take a
defensive position because it invests exclusively in investment
grade money market securities.
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20
<PAGE>
The Investment Adviser and Subadviser
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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). Sun Life of Canada completed its demutualization on March
22, 2000. As a result of the demutualization, a new holding
company, Sun Life Financial Services of Canada Inc. ("Sun Life
Financial"), is now the ultimate parent of Sun Life of Canada and
the adviser. Sun Life Financial, a corporation organized in
Canada, is a reporting company under the Securities Exchange Act
of 1934 with common shares listed on the Toronto, New York,
London, and Manila stock exchanges.
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 December 31, 1999 of $208 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 each fund other than the
Money Market Fund, Investment Grade Bond Fund and Real Estate
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 each fund,
the adviser has contractually agreed to maintain the limit
described below until May 1, 2001.
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%
Real Estate Fund 0.95% 1.25%
Blue Chip Mid Cap Fund 0.80% 1.00%
Investors Foundation Fund 0.75% 0.90%
Select Equity Fund 0.75% 0.90%
Davis Financial Fund 0.75% 0.90%
Davis Venture Value Fund 0.75% 0.90%
Value Equity Fund 0.80% 0.90%
Value Managed Fund 0.80% 0.90%
Value Mid Cap Fund 0.80% 1.00%
Value Small Cap Fund 0.80% 1.00%
</TABLE>
The advisory fee for Blue Chip Mid Cap Fund, Investors Foundation
Fund and Select Equity Fund declines to 0.75%, 0.70% and 0.70%,
respectively, as each fund's daily net assets exceed $300 million.
The advisory fee for each of Value Equity Fund, Value Managed
Fund, Value Mid Cap Fund and Value Small Cap Fund declines to
0.75% as each fund's daily net assets reach between $400 million
and $800 million, then declines to 0.70% as each fund's daily net
assets exceed $800 million. The advisory fee for each of Davis
Financial Fund and Davis Venture Value Fund declines to 0.70% as
each fund's daily net assets exceed $500 million.
Sun Capital Advisers Trust and the adviser have received an
exemptive order from the Securities and Exchange Commission
permitting the adviser, subject to the approval of the board of
trustees, to select
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21
<PAGE>
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- --------------------------------------------------------------------------------
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 Wellington Management Company, LLP. 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. 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 December 31, 1999, Wellington
Management had discretionary investment authority with respect to
approximately $235.5 billion of client assets.
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 December 31, 1999, the U.S. Intersection and
Mid Cap Opportunities strategies consisted of four and three
accounts, having total assets of $339.9 million and $898.4
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 December 31, 1999)
3 5 Since Inception
1 Year Years Years (September 30, 1992)
------ ------ ------ --------------------
<S> <C> <C> <C> <C>
U.S. Intersection
Composite................ 21.79% 28.68% 28.77% 21.93%
S&P 500 Index............. 21.04% 27.56% 28.55% 21.54%
Lipper Variable Annuity
Underlying Growth and
Income Fund Average...... 14.64% 18.88% 21.88% 17.15%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
-------------------------------------------------
(for 1-year periods ended December 31)
1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Intersection
Composite........ 7.81% 0.71% 38.44% 20.00% 33.14% 31.42% 21.79%
S&P 500 Index..... 10.08% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04%
Lipper Variable
Annuity
Underlying Growth
and Income Fund
Average.......... 12.36% (0.33%) 31.85% 20.65% 27.26% 16.47% 14.64%
</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 December 31, 1999)
Since Inception
1 Year (August 31, 1997)
------------------ ------------------------
<S> <C> <C>
Mid Cap Opportunities
Composite............... 51.54% 37.43%
S&P Mid Cap 400 Index.... 14.72% 17.51%
Lipper Variable Annuity
Underlying Mid Cap Fund
Average................. 43.99% 29.76%
</TABLE>
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22
<PAGE>
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year by Year
Total Returns
-----------------------
(for 1-year periods
ended December 31)
1998 1999
----------- -----------
<S> <C> <C>
Mid Cap Opportunities Composite............. 25.44% 51.54%
S&P Mid Cap 400 Index....................... 19.12% 14.72%
Lipper Variable Annuity Underlying Mid Cap
Fund Average............................... 18.70% 43.99%
</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 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 May 1, 2001. In some cases, the actual
expenses of the accounts in the composite were higher than the
estimated expenses for the composite's corresponding fund. As a
result, the performance presented herein as adjusted for the
fund's estimated expenses may in certain cases be better than that
actually experienced by the underlying accounts in the composite.
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,
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 $185 million and $37.1
billion as of December 31, 1999). The Lipper Variable Annuity
Underlying Growth and Income Fund Average is a composite return of
216 funds that invest primarily in growth companies. The Lipper
Variable Annuity Underlying Mid Cap Fund Average is a composite
return of 89 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.
About Davis Selected Advisers, L.P. Davis Selected Advisers, L.P.,
2949 East Elvira Road, Suite 101, Tucson, Arizona 85706, serves as
the subadviser to Davis Financial Fund and Davis Venture Value
Fund. Davis Selected Advisers 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. Davis Selected Advisers is a
professional investment management firm which provides investment
services to mutual funds, employee benefit plans and other
institutions and individuals.
- --------------------------------------------------------------------------------
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23
<PAGE>
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Davis Selected Advisers is a limited partnership and Venture
Advisers, Inc., is its sole general partner. Shelby M.C. Davis is
the controlling shareholder of the general partner. As of December
31, 1999, Davis Selected Advisers advised or subadvised more than
20 portfolios for U.S. registered investment companies with assets
of more than $25 billion.
Davis Selected Advisers' Prior Performance for Similar Accounts.
The following tables reflect data supplied by Davis Selected
Advisers relating to the performance of fee paying, fully
discretionary accounts using Davis Selected Advisers' "Davis
Financial Composite" and "Davis Large Cap Equity Composite"
strategies. For periods after January 1, 1998, the composites
include only accounts having $3.5 million or more in assets. Each
account in these portfolios has investment objectives, policies
and strategies substantially similar (although not necessarily
identical) to those used by Davis Selected Advisers in managing
Davis Financial Fund and Davis Venture Value Fund, respectively.
As of December 31, 1999, the Davis Financial Composite and Davis
Large Cap Equity Composite strategies consisted of 6 and 28
accounts, having total assets of $919.7 million and $23.7 billion
representing 100% and 97% of financial and large cap equity
accounts under management, respectively.
Davis Selected Advisers' Financial Composite Performance
(comparison composite for Davis Financial Fund)
<TABLE>
<CAPTION>
Average Annual Total Returns
---------------------------------------
(for periods ended December 31, 1999)
3 5 Since Inception
1 Year Years Years (January 1, 1992)
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Financial Composite......... (0.74%) 18.14% 26.91% 21.87%
S&P 500 Index............... 21.04% 27.56% 28.55% 19.66%
Lipper Financial Services
Fund Average............... (1.44%) 14.38% 22.11% 19.43%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
--------------------------------------------------------
(for 1-year periods ended December 31)
1992 1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Composite..... 33.89% 15.42% (4.31%) 51.29% 32.03% 45.08% 14.46% (0.74%)
S&P 500 Index........... 7.62% 10.08% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04%
Lipper Financial
Services Fund Average.. 35.05% 15.67% (2.68%) 41.84% 28.54% 45.76% 6.11% (1.44%)
</TABLE>
Davis Selected Advisers' Large Cap Equity Composite Performance
(comparison composite for Davis Venture Value Fund)
<TABLE>
<CAPTION>
Average Annual Total
Returns
---------------------------
(for periods ended December
31, 1999)
3 5 10
1 Year Years Years Years
------ ------ ------ ------
<S> <C> <C> <C> <C>
Large Cap Value Equity Composite......... 18.00% 22.24% 26.65% 18.82%
S&P 500 Index............................ 21.04% 27.56% 28.55% 18.21%
Lipper Large Cap Value Fund Average...... 11.18% 18.95% 22.20% 15.07%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
-----------------------------------------------------------------------
(for 1-year periods ended December 31)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap Value
Equity
Composite...... (2.90%) 40.91% 12.23% 14.69% (2.27%) 40.02% 27.50% 34.65% 14.95% 18.00%
S&P 500 Index... (3.11%) 30.47% 7.62% 10.08% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04%
Lipper Large Cap
Value Fund
Average........ (4.17%) 30.95% 8.00% 11.68% (0.21%) 32.93% 22.28% 28.09% 18.45% 11.28%
</TABLE>
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24
<PAGE>
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Performance of the Davis Selected Advisers' composites is not that
of the Davis Financial Fund or Davis Venture Value 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 Davis Selected Advisers' composite performance data in each
table for the Financial portfolio and the Large Cap Equity
portfolio has been adjusted to reflect the estimated total
operating expenses (after giving effect to the adviser's
contractual expense limit) of the Davis Financial Fund (0.90%) and
Davis Venture Value Fund (0.90%), respectively. The adviser has
agreed to maintain these expense limits until May 1, 2001. In some
cases, the actual expenses of the accounts in the composite were
higher than the estimated expenses for the composite's
corresponding fund. As a result, the performance presented herein
as adjusted for the fund's estimated expenses may in certain cases
be better than that actually experienced by the underlying
accounts in the composite. 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. Each composite performance is computed using an internal
time-weighted rate of return for each account (including every
private account and every mutual fund in the composite), weighted
for the relative size of each account using beginning of period
values. 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. Unlike mutual
funds, 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 Index is an unmanaged, weighted index of the stock
performance of industrial, transportation, utility and financial
companies. The S&P 500 Index represents the performance of 500 of
these companies. The Lipper Financial Services Fund Average is a
composite return of 73 funds that invest primarily in equity
securities of companies engaged in providing financial services.
The Lipper Large Cap Value Fund Average is a composite return of
317 funds that invest primarily in companies that are considered
to be undervalued relative to a major unmanaged stock index based
on its price-to-current earnings, book value, asset value or other
factors.
About OpCap Advisors. OpCap Advisors, 1345 Avenue of the Americas,
New York, New York 10105-4800, serves as the subadviser to Value
Equity Fund, Value Managed Fund, Value Mid Cap Fund and Value
Small Cap Fund. OpCap Advisors 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. OpCap Advisors, an indirect wholly
owned subsidiary of PIMCO Advisors L.P., is the subsidiary of
Oppenheimer Capital responsible for the management of investment
company assets in the United States and elsewhere. These include
closed-end funds, mutual funds offered directly to retail
investors as well as funds offered as investment alternatives in
variable annuity and variable insurance products. PIMCO Advisors,
L.P. has entered into a definitive agreement with Allianz AG, one
of the world's largest insurance companies, contemplating that a
subsidiary of Allianz AG will acquire an approximately 70%
interest in PIMCO Advisors, L.P. and its subsidiaries. The
acquisition is expected to take place on or about May 5, 2000.
As of December 31, 1999, OpCap Advisors advised or subadvised more
than 30 portfolios for U.S. registered investment companies with
assets of more than $15 billion.
OpCap Advisors' Prior Performance for Similar Accounts. The
following tables reflect data supplied by OpCap Advisors relating
to the performance of the "Large Cap Value Equity","Managed
Value", "Mid Cap Value Equity"and "Small Cap Value Equity" styles.
These portfolios have investment objectives, policies and
strategies substantially similar, but not necessarily identical,
to those of Value Equity Fund, Value Managed Fund, Value Mid Cap
Fund and Value Small Cap Fund,
- --------------------------------------------------------------------------------
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25
<PAGE>
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respectively. As of December 31, 1999, the Large Cap Value Equity,
Managed Value, Mid Cap Value Equity, and Small Cap Value Equity
strategies consisted of 145, 3, 2 and 7 accounts, having total
assets of $12.5 billion, $408.1 million, $35.7 million and $6.3
billion, respectively.
OpCap Advisors' Large Cap Value Equity Composite Performance
(comparison composite for Value Equity Fund)
<TABLE>
<CAPTION>
Average Annual Total
Returns
---------------------------
(for periods ended December
31, 1999)
3 5 10
1 Year Years Years Years
------ ------ ------ ------
<S> <C> <C> <C> <C>
Large Cap Value Equity Composite........ 4.78% 14.93% 21.77% 14.97%
S&P 500 Index........................... 21.04% 27.56% 28.55% 18.21%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
---------------------------------------------------------------------
(for 1-year periods ended December 31)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap Value
Equity
Composite...... (5.36%) 26.70% 15.25% 8.91% 0.15% 41.20% 24.90% 26.41% 14.62% 4.78%
S&P 500 Index... (3.11%) 30.47% 7.62% 10.08% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04%
</TABLE>
As of January 1, 1993, the performance shown represents a dollar
weighted composite of gross returns for all unrestricted employee
benefit equity accounts under management with assets in excess of
$5 million. As of January 1, 1997, the composite also included all
unrestricted tax-exempt equity (excluding Taft-Hartley) accounts.
As of June 30, 1999, Taft-Hartley equity accounts were added to
the composite. As of December 31, 1999, the Large Cap Value Equity
composite consisted of 145 separate accounts representing 61% of
large cap equity tax-exempt accounts in excess of $5 million under
management and $12.5 billion representing 67% of the total assets
in tax-exempt separate accounts in the Large Cap Value Equity
style.
OpCap Advisors' Managed Value Composite Performance
(comparison composite for Value Managed Fund)
<TABLE>
<CAPTION>
Average Annual Total Returns
----------------------------------------
(for periods ended December 31, 1999)
3 5 Since Inception
1 Year Years Years (December 31, 1990)
------ ------ ------ -------------------
<S> <C> <C> <C> <C>
Managed Value Composite.... 5.94% 11.88% 20.27% 19.44%
S&P 500 Index.............. 21.04% 27.56% 28.55% 20.85%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
---------------------------------
(for 1-
year periods ended December 31,)
1991 1992 1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Managed Value
Composite..... 46.51% 18.51% 9.95% 3.02% 45.50% 23.48% 22.33% 8.05% 5.94%
S&P 500 Index.. 30.47% 7.62% 10.08% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04%
</TABLE>
As of January 1, 1991, the performance shown represents a dollar
weighted composite of investment companies with assets in excess
of $5 million. As of December 31, 1999, the Managed Value
composite consisted of 7 investment companies totaling $6.3
billion. Gross of fee returns were calculated by taking
performance calculated at net asset value and adding back average
monthly fees (investment management fee, fund service fee, 12b-1
fee and other expenses).
- --------------------------------------------------------------------------------
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26
<PAGE>
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OpCap Advisors' Mid Cap Value Equity Composite Performance
(comparison composite for Value Mid Cap Fund)
<TABLE>
<CAPTION>
Average Annual Total Returns
----------------------------------------
(for periods ended December 31, 1999)
3 5 Since Inception
1 Year Years Years (December 31, 1994)
------ ------ ------ -------------------
<S> <C> <C> <C> <C>
Mid Cap Value Equity
Composite................ 23.34% 13.75% 18.04% 18.04%
S&P 400 Mid Cap Value
Index.................... 2.32% 12.91% 18.15% 18.15%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
---------------------------------
(for 1-
year periods ended December 31)
1995 1996 1997 1998 1999
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Mid Cap Value Equity Composite.... 25.53% 24.02% 19.01% 0.26% 23.34%
S&P 400 Mid Cap Value Index....... 34.04% 19.34% 34.38% 4.67% 2.32%
</TABLE>
As of January 1, 1995, the performance shown represents a dollar
weighted composite of gross returns for all unrestricted employee
benefit equity accounts under management with assets in excess of
$5 million. As of June 30, 1999, Taft-Hartley equity accounts were
added to the composite. As of December 31, 1999, the Mid Cap Value
composite consisted of three accounts totaling $408.1 million
representing 100% of mid cap equity tax-exempt accounts and 50% of
all Mid Cap Value equity accounts under management.
OpCap Advisors' Small Cap Value Equity Composite Performance
(comparison composite for Value Small Cap Equity Fund)
<TABLE>
<CAPTION>
Average Annual Total
Returns
---------------------------
(for periods ended
December 31, 1999)
3 5 10
1 Year Years Years Years
------ ----- ------ ------
<S> <C> <C> <C> <C>
Small Cap Value Equity Composite......... (1.99%) 2.09% 7.56% 10.75%
Russell 2000 Value Index................. (1.49%) 6.69% 13.14% 12.46%
</TABLE>
<TABLE>
<CAPTION>
Year by Year Total Returns
--------------------------------------------------------------------------
(for 1-year periods ended December 31)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------- ------ ------ ------ ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap Value
Equity
Composite...... (12.09%) 49.45% 22.27% 19.31% 0.56% 10.40% 22.59% 22.42% (11.34%) (1.99%)
Russell 2000
Value Index.... (21.77%) 41.70% 29.14% 23.84% (1.55%) 25.75% 21.37% 31.78% (6.45%) (1.49%)
</TABLE>
As of January 1, 1995 the performance shown represents a dollar-
weighted composite of gross returns for all unrestricted tax-
exempt Small Cap Value accounts under management with assets in
excess of $5 million. As of December 31, 1999, the Small Cap Value
composite was comprised of two accounts totaling $35.7 million
representing 100% of small cap equity tax-exempt accounts and 18%
of all small cap equity accounts under management. Gross of fee
returns for investment companies included in the composite were
calculated by taking performance calculated at net asset value and
adding back average monthly fees (investment management fee, fund
service fee, 12b-1 fee and other expenses).
- --------------------------------------------------------------------------------
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27
<PAGE>
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Performance of the OpCap Advisors composites is not that of the
Value Equity Fund, Value Managed Fund, Value Mid Cap Fund or Value
Small Cap Fund, is not a substitute for any fund's performance and
does not predict a fund's performance results, which may differ
from the composites' results.
The OpCap Advisors composite performance data for the Large Cap
Value Equity portfolio, Managed Value portfolio, Mid Cap Value
Equity portfolio and Small Cap Value Equity portfolio has been
adjusted to reflect the estimated total operating expenses (after
giving effect to the adviser's contractual expense limit) of the
Value Equity Fund (.90%), Value Managed Fund (0.90%), Value Mid
Cap Fund (1.00%), and Value Small Cap (1.00%), respectively. The
adviser has agreed to maintain these expense limits until May 1,
2001. In some cases, the actual expenses of the accounts in the
composite were higher than the estimated expenses for the
composite's corresponding fund. As a result, the performance
presented herein as adjusted for the fund's estimated expenses may
in certain cases be better than that actually experienced by the
underlying accounts in the composite. 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, 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 400 Mid Cap Value 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
400 Mid Cap Value Index represents the performance of 400 of these
companies having medium size market capitalizations with low
price-to-book ratios and low price-to-earnings ratios. The Russell
2000 Value Index is an unmanaged, market-weighted total return
index that measures the performance of companies within the
Russell 2000 Index having lower price-to-book ratios and lower
forecasted growth values. The Russell 2000 Index includes the 2000
companies with the smallest market capitalizations from the
Russell 3000 Index, an index representing 98% of the investable US
equity market.
The OpCap composite performance results were calculated in
accordance with the Performance Presentation Standards of 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.
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>
Money Market Fund and Richard Vice president, Sun Capital Advisers
Investment Grade Bond Fund Gordon, CFA Trust, since 1998. Senior vice
president, Sun Capital Advisers, Inc.,
since 2000, and previously vice
president (1992-2000). Vice president,
U.S. Public Bonds, Sun Life Assurance
Company of Canada, since 1994.
Howard C. Vice president, Sun Capital Advisers
Greene, CFA Trust, since 1998. Senior vice
president, Sun Capital Advisers, Inc.,
since 2000, and previously vice
president (1998-2000). Assistant vice
president, U.S. Public Bonds, Sun Life
Assurance Company of Canada, since
1996. Prior to that, senior investment
officer (1989-1996).
</TABLE>
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28
<PAGE>
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<TABLE>
<CAPTION>
Positions during past
Fund Fund five years
manager(s)
<C> <C> <S>
Real Estate Fund John T. Vice president, Sun
Donnelly, Capital Advisers Trust,
CFA since 1998. Senior vice
president, Sun Capital
Advisers, Inc., since
2000, and previously
vice president (1998-
2000). Vice president,
U.S. Equities, Sun Life
Assurance Company of
Canada, since 1999.
Prior to that, assistant
vice president (1997-
1999) and senior
investment officer, U.S.
Public Bonds (1994-
1997).
Joseph H. Vice president, Sun
Bozoyan Capital Advisers, Inc.,
since 2000. Senior
investment analyst, U.S.
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. Senior vice president,
Pedulla Sun Capital Advisers,
Inc., since 2000, and
previously vice
president (1998-2000).
Assistant vice
president, U.S. Real
Estate, Sun Life
Assurance Company of
Canada, since 2000.
Prior to that, senior
property investments
officer (1999-2000),
property investments
officer (1995-1999), and
senior property
investments analyst
(1993-1995).
Blue Chip Mid Cap Fund Team-Managed The Fund is managed by
Wellington Management
Company, LLP's Mid Cap
Opportunities Team. The
Team focuses on
investments in mid cap
equity securities and is
comprised of investment
professionals with an
average of 12 years of
investment experience.
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).
Davis Financial Fund Christopher C. Portfolio manager or co-
and Davis Venture Value Fund Davis portfolio manager of
Davis New York Venture
Fund since 1995.
Research analyst, Davis
Selected Advisers, L.P.
(1989-1995).
Kenneth C. Co-portfolio manager of
Feinberg Davis New York Venture
Fund since 1998.
Research analyst, Davis
Selected Advisers, L.P.
(1994-1998).
Value Equity Fund Richard J. Glasebrook, II The Fund is managed by
and Team Mr. Glasebrook, who has
been a managing director
of OpCap Advisors since
1990, and OpCap
Advisors' Equity Team,
which is comprised of
investment professionals
who focus on investments
in large cap equity
securities.
Value Managed Fund Richard J. Managing director, OpCap
Glasebrook, II Advisors, since 1990.
Value Mid Cap Fund Louis P. Senior vice president,
Goldstein OpCap Advisors, since
1991.
Value Small Cap Fund Mark Degenhart Vice president, OpCap
Advisors, since 1999.
</TABLE>
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- --------------------------------------------------------------------------------
29
<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. Real Estate Fund, Blue Chip Mid Cap Fund, Investors
Foundation Fund, Select Equity Fund, Davis Financial Fund,
Davis Venture Value Fund, Value Equity Fund, Value Managed
Fund, Value Mid Cap Fund and Value Small Cap 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 U.S. federal
income tax purposes by life insurance company separate accounts
in connection with variable contracts, not by the owners of these
variable contracts. Owners of variable 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.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each fund is treated as a separate entity for U.S. federal
income tax purposes and intends to qualify each year as a
regulated investment company under Subchapter M of the Code.
Each fund must satisfy federal tax requirements relating to the
sources of its income and diversification of its assets. If a
fund meets these requirements, it will not be subject to U.S.
federal income tax on any net investment income and net capital
gains that are distributed.
In addition to the above, each fund also intends to comply with
certain fund diversification requirements relating to the tax-
deferred status of variable contracts issued by insurance
company separate accounts. More specific information on these
diversification requirements is contained in the prospectus for
the variable contracts and in the funds' Statement of
Additional Information.
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 accrued on the contract for the
current and all prior taxable years, unless the Internal
Revenue Service permits correction of the failure, which cannot
be assured.
Fund Details
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
31
<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 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). Financial highlights
for Davis Financial Fund, Davis Venture Value Fund, Value
Equity Fund, Value Managed Fund, Value Mid Cap Fund and Value
Small 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
Money Market Fund Bond Fund
------------------------------------ ------------------------------------
Period Ended Year Ended Period Ended Year Ended
December 31, 1998* December 31, 1999 December 31, 1998* December 31, 1999
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.......... $1.000 $ 1.000 $10.000 $ 9.970
------ ------- ------- -------
INCOME (LOSS)
FROM
INVESTMENT OPERATIONS:
Net investment
income......... 0.003 0.045 0.034 0.576
Net realized and
unrealized gain
(loss) on
investments ... -- -- (0.030) (0.630)
------ ------- ------- -------
Total from
Investment
Operations .... 0.003 0.045 0.004 (0.054)
------ ------- ------- -------
LESS
DISTRIBUTIONS
FROM:
Net investment
income ........ (0.003) (0.045) (0.034) (0.576)
Capital......... -- -- -- --
------ ------- ------- -------
Total
Distributions.. (0.003) (0.045) (0.034) (0.576)
------ ------- ------- -------
NET ASSET VALUE,
END OF PERIOD .. $1.000 $ 1.000 $ 9.970 $ 9.340
====== ======= ======= =======
TOTAL RETURN(a) . 0.31 % 4.63 % 0.04 % (0.56)%
====== ======= ======= =======
RATIOS AND
SUPPLEMENTAL
DATA:
Net assets, end
of period
(000's) ........ $2,510 $13.971 $10,026 $18.184
Ratios to average
net assets:
Net expenses(b)
............... 0.65 % 0.65 % 0.75 % 0.75 %
Gross
expenses(b).... 12.29 % 2.70 % 4.10 % 1.98 %
Net investment
income (b) .... 4.48 % 4.69 % 5.01 % 6.00 %
Portfolio
turnover rate .. N/A N/A 3 % 78 %
<CAPTION>
Sun Capital
Real Estate Fund
------------------------------------
Period Ended Year Ended
December 31, 1998* December 31, 1999
------------------ -----------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.......... $10.000 $9.850
------------------ -----------------
INCOME (LOSS)
FROM
INVESTMENT OPERATIONS:
Net investment
income......... 0.082 0.467
Net realized and
unrealized gain
(loss) on
investments ... (0.152) (0.878)
------------------ -----------------
Total from
Investment
Operations .... (0.070) (0.411)
------------------ -----------------
LESS
DISTRIBUTIONS
FROM:
Net investment
income ........ (0.080) (0.447)
Capital......... -- (0.052)
------------------ -----------------
Total
Distributions.. (0.080) (0.499)
------------------ -----------------
NET ASSET VALUE,
END OF PERIOD .. $ 9.850 $8.940
================== =================
TOTAL RETURN(a) . (0.71)% (3.98)%
================== =================
RATIOS AND
SUPPLEMENTAL
DATA:
Net assets, end
of period
(000's) ........ $ 4,930 $6.089
Ratios to average
net assets:
Net expenses(b)
............... 1.25 % 1.25 %
Gross
expenses(b).... 7.44 % 3.39 %
Net investment
income (b) .... 12.16 % 6.09 %
Portfolio
turnover rate .. 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
32
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sun Capital Sun Capital Sun Capital
Blue Chip Mid Cap Fund Investors Foundation Fund Select Equity Fund
---------------------- ------------------------- ------------------
Period Ended Period Ended Period Ended
December 31, 1999* December 31, 1999* December 31, 1999*
---------------------- ------------------------- ------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.000 $10.000 $10.000
------- ------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income.. -- 0.015 --
Net realized and
unrealized gain (loss)
on investments ....... 2.683 1.197 2.640
------- ------- -------
Total from Investment
Operations ........... 2.683 1.212 2.640
------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income . -- (0.015) --
Net realized gain on
investments........... (0.383) (0.007) --
------- ------- -------
Total Distributions.... (0.383) (0.022) --
------- ------- -------
NET ASSET VALUE, END OF
PERIOD ................ $12.300 $11.190 $12.640
======= ======= =======
TOTAL RETURN(a) ........ 27.07 % 12.13 % 26.40 %
======= ======= =======
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (000's) ........ $ 6.780 $ 3.867 $ 5.140
Ratios to average net
assets:
Net expenses(b) ....... 1.00 % 0.90 % 0.90 %
Gross expenses(b)...... 4.11 % 5.12 % 4.25 %
Net investment income
(b) .................. (0.16)% 0.46 % (0.06)%
Portfolio turnover rate
....................... 51 % 31 % 51 %
</TABLE>
- ------
* For the period from September 1, 1999 (commencement of operations) to
December 31, 1999.
(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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
33
<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 Section
Washington, D.C. 20549-0102
e-mail: [email protected]
Telephone: 1-202-942-8090
Free from the EDGAR Database on the SEC's
Internet website: http://www.sec.gov
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 Real Estate Fund
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Investors Foundation Fund
Sun Capital Select Equity Fund
Sun Capital Davis Financial Fund
Sun Capital Davis Venture Value Fund
Sun Capital Value Equity Fund
Sun Capital Value Managed Fund
Sun Capital Value Mid Cap Fund
Sun Capital Value Small Cap Fund
Statement of Additional Information
May 1, 2000
The statement of additional information is not a prospectus. The funds'
prospectus, dated
May 1, 2000, 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
The funds' financial statements for the fiscal year ended December 31, 1999
are incorporated into this statement of additional information by reference.
You may obtain the most recent annual report to shareholders by calling the
number above.
<PAGE>
Table of Contents
================================================================================
<TABLE>
<S> <C>
More Information About the Funds' investments.......................... 1
Investment Strategy and Risks..................................... 1
Investment Restrictions........................................... 21
The Funds' Management.................................................. 24
Trustees and Officers............................................. 24
Trustee Compensation.............................................. 25
The Investment Adviser............................................ 26
The Subadvisers................................................... 29
Administrator..................................................... 32
Transfer Agent.................................................... 32
Custodian......................................................... 32
Independent Public Accountants.................................... 32
Information About The Trust's History and Organizations................ 33
More Information About How The Funds Value Their Shares................ 35
Taxes.................................................................. 37
Brokerage Allocation................................................... 41
Calculation of Performance Information................................. 43
Financial Statements................................................... 47
Appendix A............................................................. A-1
</TABLE>
================================================================================
-i-
<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. Value Equity Fund invests at least 65%
of its total assets in equity securities listed on the New York Stock Exchange.
Value Mid Cap Fund invests primarily in equity securities of companies with
market capitalizations between $500 million and $5 billion at the time of
purchase. Value Small Cap Fund invests primarily in a diversified portfolio of
equity securities of companies with market capitalizations of under $1 billion
at time of purchase. Value Managed Fund primarily invests in a portfolio
consisting of common stocks, bonds and cash equivalents. Davis Venture Value
Fund invests primarily in equity securities of domestic companies with market
capitalization of at least $5 billion. The Davis Financial Fund generally will
invest a minimum of 25% of its total assets in investments in each of the
banking and financial industries. More information about those securities is
provided below.
Money Market Fund, Investment Grade Bond Fund, Blue Chip Mid Cap Fund, Investors
Foundation Fund, Davis Financial Fund, Davis Venture Value Fund, Value Equity
Fund, Value Managed Fund, Value Mid Cap Fund and Value Small 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. Real Estate Fund and
Select Equity Fund are not diversified and each may invest without regard to
such limits. This means that the net asset value of Real Estate Fund and Select
Equity 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 Real Estate Fund Select Equity 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 Real Estate Fund's and Select Equity Fund's volatility risk.
Securities in which the funds may invest.
- -----------------------------------------
Common Shares. (All funds except Money Market Fund and Investment Grade Bond
Fund) Common shares represent an equity (ownership) interest in a company or
other entity.
================================================================================
-1-
<PAGE>
================================================================================
This ownership interest often gives a fund the right to vote on
measures affecting the company's organization and operations. Although common
shares generally have a history of long-term growth in value, their prices,
particularly those of smaller capitalization companies, are often volatile in
the short-term.
Preferred Shares. (All funds) Preferred shares represent a limited equity
- -----------------
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, Davis Financial Fund and
- -----------------------------
Davis Venture Value 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. Each 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. Each of Davis Financial Fund and Davis Venture
Value Fund may, to a lesser degree, be subject to these risks.
================================================================================
-2-
<PAGE>
================================================================================
These risks include, among others: possible declines in the value of real
estate; risks related to general and local economic conditions; possible lack of
availability of mortgage funds; overbuilding; extended vacancies of properties;
increases in competition, property taxes and operating expenses; changes in
zoning or applicable tax law; costs resulting from the clean-up of, and
liability to third parties for damages resulting from, environmental problems;
casualty or condemnation losses; uninsured damages from floods, earthquakes or
other natural disasters; limitations on and variations in rents; and changes in
interest rates.
In addition, if the fund has rental income or income from the disposition of
real property acquired as a result of a default on securities the fund owns, the
receipt of such income may adversely affect its ability to retain its tax status
as a regulated investment company. Investments by the fund in securities of
companies providing mortgage servicing will be subject to the risks associated
with refinancings and their impact on servicing rights.
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, Real
- -----------------------
Estate Fund, Davis Financial Fund and Davis Venture Value Fund and Value Managed
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 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
================================================================================
-3-
<PAGE>
================================================================================
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, Davis Financial Fund and Davis Venture Value Fund and Value
Managed 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. Davis Venture Value Fund will not purchase securities
rated BB or Ba or lower if the securities are in default at the time of purchase
or if such purchaser would then cause 5% or more of the fund's net asset to be
investment in such lower-rated securities. The Davis Financial Fund generally
restricts its investment in high yield, high risk debt securities to 5% of the
Fund's net assets or less. 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
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reduced availability of reliable, objective data may increase a fund's reliance
on management's judgment in valuing the high yield bonds. To the extent that a
fund invests in these securities, the achievement of the fund's objective will
depend more on the adviser's judgment and analysis than it 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.
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Mortgage-Backed Securities. (Money Market Fund, Investment Grade Bond Fund,
- --------------------------
Real Estate Fund and Value Managed Fund) Mortgage-backed securities represent
participation interests in pools of adjustable and fixed rate mortgage loans
secured by real property.
Unlike conventional debt obligations, mortgage-backed securities provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans. The
mortgage loans underlying mortgage-backed securities are generally subject to a
greater rate of principal prepayments in a declining interest rate environment
and to a lesser rate of principal prepayments in an increasing interest rate
environment. Under certain interest and prepayment scenarios, the fund may fail
to recover the full amount of its investment in mortgage-backed securities
notwithstanding any direct or indirect governmental or agency guarantee. Since
faster than expected prepayments must usually be invested in lower yielding
securities, mortgage-backed securities are less effective than conventional
bonds in "locking" in a specified interest rate. In a rising interest rate
environment, a declining prepayment rate may extend the average life of many
mortgage-backed securities. Extending the average life of a mortgage-backed
security reduces its value and increases the risk of depreciation due to future
increases in market interest rates.
The fund's investments in mortgage-backed securities may include conventional
mortgage pass through securities and certain classes of multiple class
collateralized mortgage obligations ("CMOs"). Mortgage pass-through securities
are fixed or adjustable rate mortgage-backed securities that provide for monthly
payments that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans. CMOs are issued
in multiple classes, each having different maturities, interest rates, 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,
Real Estate Fund and Value Managed 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
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not limited to the GNMA, FNMA and FHLMC. GNMA securities are backed by the full
faith and credit of the U.S. government, which means that the U.S. government
guarantees that the interest and principal will be paid when due. 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, Real
- ------------------------
Estate Fund and Value Managed 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.
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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 considered to be located in or doing business
in a foreign country if it satisfies at least one of the
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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.
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 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
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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.
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
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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.
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
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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
- ---------------------
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.
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.
Banking and Financial Services Industries. During normal market conditions
- -----------------------------------------
Davis Financial Fund may invest 25% or more of its total assets in obligations
of domestic and foreign companies
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in each of the banking and financial services industries. Companies in the
banking industry include U.S. and foreign commercial and industrial banking and
savings institutions (including their parent holding companies). Companies in
the financial services industry include commercial and industrial finance
companies, diversified financial services companies, investment banking,
securities brokerage and investment advisory companies, leasing companies and
insurance companies (including multi-line, property, casualty and life insurance
companies) and insurance holding companies. As a result of these investments,
the Davis Financial Fund's portfolio is particularly vulnerable to events
affecting those industries, including the risks associated with regulatory
developments in or related to such industries.
Banking Industry. Commercial banks (including "money center," regional and
community banks), savings and loan associations, and holding companies of the
foregoing are especially subject to adverse effects of volatile interest rates,
concentrations of loans in particular industries (such as real estate or
energy), and significant competition. The profitability of these businesses is
to a significant degree dependent upon the availability and cost of capital
funds. Economic conditions in the real estate market may have a particularly
strong effect on certain banks and savings associations. Commercial banks and
savings associations are subject to extensive federal and, in many instances,
state regulation. Neither such extensive regulation nor the federal insurance
of deposits ensures the solvency or profitability of companies in this industry,
and there is no assurance against losses in securities issued by such companies.
Broadening bank powers, including the ability to engage in multi-state
operations while permitting diversification of operations, also could expose
banks to well-established competitors in new areas of operations. The
broadening of regional and national interstate powers and the aggressive
expansion of larger publicly held foreign banks may result in increased
competition and a decline in the number of publicly traded regional banks.
Financial Services Industry. Many of the investment considerations discussed in
connection with banks and savings associations also apply to financial services
companies. These companies are all subject to extensive regulation, rapid
business changes, volatile performance dependent upon the availability and cost
of capital and prevailing interest rates, and significant competition. General
economic conditions significantly affect these companies. Credit and other
losses resulting from the financial difficulty of borrowers or other third
parties have a potentially adverse effect on companies in this industry.
Investment banking, securities brokerage and investment advisory companies are
particularly subject to government regulation and the risks inherent in
securities trading and underwriting activities. Insurance companies are
particularly subject to government regulation and rate setting, potential anti-
trust and tax law changes, and industry-wide pricing and competition cycles.
Property and casualty insurance companies may also be affected by weather and
other catastrophes. Life and health insurance companies may be affected by
mortality and morbidity rates, including the effects of epidemics. Individual
insurance companies may be exposed to reserve inadequacies, problems in
investment portfolios (for example, due to real estate or "junk" bond holdings),
and failures of reinsurance carriers.
Other Considerations. Regulations of the Securities and Exchange Commission
limit investments in the securities of companies that derive more than 15% of
their gross revenues from the securities or investment management business. The
Competitive Equality Banking Act of 1987 requires that with
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respect to at least 75% of the total assets of any fund investing in bank
securities, no more than 5% of total assets may be invested in a single issuer.
The Davis Financial Fund intends to comply with these restrictions.
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. (All funds except Money Market
- --------------------------------------------
Fund) A fund may purchase and write (sell) call and put options on any
securities in which it may invest or on any securities index based on securities
in which it may invest. These options may be listed on securities exchanges or
traded in the over-the-counter market. A fund may write covered put and call
options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities, or to protect against
declines in the value of portfolio securities and against increases in the cost
of securities to be acquired.
Writing Covered Options. A call option on securities written by a fund
obligates the fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by a fund obligates the fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive a fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive a fund of the
opportunity to profit from a decrease in the market price of the securities to
be acquired for its portfolio.
All call and put options written by a fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities in a
segregated account with a value at least equal to a fund's obligation under the
option, (ii) entering into an offsetting forward commitment and/or (iii)
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the fund's net exposure on its written
option position. A written call option on securities is typically covered by
maintaining the securities that are subject to the option in a segregated
account. A fund may cover call
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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.
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
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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,
- --------------------------------------------------
Real Estate Fund, Investors Foundation Fund, Davis Financial Fund, Davis Venture
Value Fund and Value Managed Fund) To seek to increase total return or hedge
against changes in interest rates or securities prices, a fund may purchase and
sell futures contracts, and purchase and write call and put options on these
futures contracts. A fund may also enter into closing purchase and sale
transactions with respect to any of these contracts and options. The futures
contracts may be based on various securities (such as U.S. government
securities), securities indices and any other financial instruments and indices.
All futures contracts entered into by the fund are traded on U.S. exchanges or
boards of trade that are licensed, regulated or approved by the Commodity
Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, a fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures contracts are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that a fund proposes to acquire. When
interest rates are rising or securities prices are falling, a fund can seek to
offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, a fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
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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.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. A fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
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Other Considerations. A fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that a fund is using futures and
related options for hedging purposes, futures contracts will be sold to protect
against a decline in the price of securities that the fund owns or futures
contracts will be purchased to protect the fund against an increase in the price
of securities it intends to purchase. The adviser will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the fund or securities or instruments which it expects to purchase. As evidence
of its hedging intent, a fund expects that on 75% or more of the occasions on
which it takes a long futures or option position (involving the purchase of
futures contracts), the fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures or option position is closed out. However, in particular
cases, when it is economically advantageous for the fund to do so, a long
futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that a fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the fund to purchase securities, require the fund to establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates or securities prices may result
in a poorer overall performance for a fund than if it had not entered into any
futures contracts or options transactions.
Perfect correlation between a fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. government securities. In the event
of an imperfect correlation between a futures position and a portfolio position
which is intended to be protected, the desired protection may not be obtained
and the fund may be exposed to risk of loss.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit trading in a futures contract or related
option, which may make the instrument temporarily illiquid and difficult to
price. Commodity exchanges may also establish daily limits on the amount that
the price of a futures contract or related option can vary from the previous
day's settlement price. Once the daily limit is reached, no trades may be made
that day at a price beyond the limit. This may prevent the fund from closing
out positions and limiting its losses.
Foreign Currency Transactions. (Investment Grade Bond Fund, Real Estate Fund,
- -----------------------------
Davis Financial Fund, Davis Venture Value Fund and Value Managed Fund) A fund's
foreign currency exchange transactions may be conducted on a spot (i.e., cash)
basis at the spot rate for purchasing or selling currency prevailing in the
foreign exchange market. A fund may also enter into 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
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sale of a currency or assets denominated in that currency. Forward contracts are
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. Transaction hedging is the purchase
or sale of forward foreign currency contracts with respect to specific
receivables or payables of a fund accruing in connection with the purchase and
sale of its portfolio securities quoted or denominated in the same or related
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in the
same or related foreign currencies. A fund may elect to hedge less than all of
its foreign portfolio positions if deemed appropriate by the adviser.
If a fund purchases a forward contract or sells a forward contract for non-
hedging purposes, it will segregate cash or liquid securities, of any type or
maturity, in a separate account in an amount equal to the value of the fund's
total assets committed to the consummation of the forward contract. The assets
in the segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal to the
amount of the fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it
may not be possible for the fund to hedge against a devaluation that is so
generally anticipated that the fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to a fund of engaging in foreign currency transactions varies with such
factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Foreign Currency Options. A foreign currency option provides the option buyer
with the right to buy or sell a stated amount of foreign currency at the
exercise price on a specified date or during the option period. The owner of a
call option has the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not the obligation, to
sell the currency. When the option is exercised, the seller (i.e., writer) of
the option is obligated to fulfill the terms of the sold option. However,
either the seller or the buyer may, in the secondary market, close its position
during the option period at any time prior to expiration.
A call option on a foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on a foreign currency generally
rises in value if the underlying currency depreciates in value. Although
purchasing a foreign currency option can protect the fund against an adverse
movement in the value of a foreign currency, the option will not limit the
movement in the value of such currency. For example, if a fund was holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the fund would not have to exercise its put option. Likewise, if a
fund were to enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of 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
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a fund's ability to establish and close out positions on such options is subject
to the maintenance of a liquid secondary market. Although a fund will not
purchase or write such options unless and until, in the opinion of the adviser,
the market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by most of the same factors that
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and may
have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.,
less than $1 million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets until
they reopen.
Foreign Currency Futures Transactions. By using foreign currency futures
contracts and options on such contracts, the fund may be able to achieve many of
the same objectives as it would through the use of forward foreign currency
exchange contracts. The fund may be able to achieve these objectives possibly
more effectively and at a lower cost by using futures transactions instead of
forward foreign currency exchange contracts.
A foreign currency futures contract sale creates an obligation by the fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although
the terms of currency futures contracts specify actual delivery or receipt, in
most instances the contracts are closed out before the settlement date without
the making or taking of delivery of the currency. Closing out of currency
futures contracts is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the fund is immediately paid
the difference and realizes a gain, and if the price of the sale is less than
the price of the offsetting 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.
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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 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
================================================================================
-21-
<PAGE>
================================================================================
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 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, Blue Chip Mid Cap Fund,
Davis Financial Fund, Davis Venture Value Fund, Value Equity Fund, Value Managed
Fund, Value Mid Cap Fund and Value Small 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.
================================================================================
-22-
<PAGE>
================================================================================
Additional investment restrictions adopted by the funds, which may be changed by
the trustees, provide that a fund may not:
8. (a) Investment Grade Bond Fund, Blue Chip Mid Cap Fund, Investors
Foundation Fund, Davis Financial Fund, Davis Venture Value Fund, Value Equity
Fund, Value Managed Fund, Value Mid Cap Fund and Value Small 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.
9. 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.
10. Make investments for the purpose of exercising control or management.
11. Invest in other investment companies except as permitted under the 1940
Act.
================================================================================
-23-
<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
- ------------------------------------------------------------------------------------------------------------------
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. Chief Investment Officer
since 2000, and president and director,
Sun Capital Advisers, Inc., 1998-2000.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
-24-
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James F. Alban* Chief Financial Officer and Senior vice president and Chief
One Sun Life Executive Park Treasurer Financial Officer, Sun Capital
Wellesley Hills, MA 02481 Advisers, Inc., since 2000. Assistant
Date of birth: January 23, 1962 vice president, Sun Capital Advisers,
Inc., 1998-2000. Audit senior manager,
PricewaterhouseCoopers LLP, 1996-1998.
Assistant vice president, Eaton Vance
Management, 1991-1996.
- ------------------------------------------------------------------------------------------------------------------
Davey S. Scoon* Assistant Treasurer Vice President and Chief Financial
One Sun Life Executive Park Officer, U.S. operations, Sun Life
Wellesley Hills, MA 02481 Assurance Company of Canada, since
Date of birth: December 14, 1946 1999. Prior to that, executive vice
president and chief operating officer
of Liberty Funds Group of Boston,
1994-1999. Senior vice president,
since 2000, and treasurer and director,
Sun Capital Advisers, Inc., since 1999.
- ------------------------------------------------------------------------------------------------------------------
Richard Gordon, CFA* Vice President Vice president, U.S. Public Bonds, Sun
One Sun Life Executive Park Life Assurance Company of Canada, since
Wellesley Hills, MA 02481 1994. Senior vice president, Sun
Date of birth: July 10, 1945 Capital Advisers, Inc., since 2000.
Vice president, Sun Capital Advisers,
Inc., 1992-2000.
- ------------------------------------------------------------------------------------------------------------------
Howard C. Greene, CFA* Vice President Assistant vice president, U.S. Public
One Sun Life Executive Park Bonds, Sun Life Assurance Company of
Wellesley Hills, MA 02481 Canada, since 1996. Prior to that,
Date of birth: July 22, 1957 senior investment officer, 1989-1996.
Senior vice president, Sun Capital
Advisers, Inc., since 2000. Vice
president, Sun Capital Advisers, Inc.,
1998-2000.
- ------------------------------------------------------------------------------------------------------------------
John T. Donnelly, CFA* Vice President Vice president, U.S. Equities, Sun Life
One Sun Life Executive Park Assurance Company of Canada since 1999.
Wellesley Hills, MA 02481 Prior to that, assistant vice
Date of birth: October 28, 1958 president, U.S. Equities, Sun Life
Assurance Company of Canada (1997-1999)
and senior investment officer U.S.
Public Bonds (1994-1997). Senior vice
president, Sun Capital Advisers, Inc.,
since 2000. Vice president, Sun
Capital Advisers, Inc., 1998-2000.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
-25-
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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. Senior vice
president and chief counsel, since
2000, and secretary, Sun Capital
Advisers, Inc. since 1998.
- ------------------------------------------------------------------------------------------------------------------
Nicole M. Tremblay* Assistant Secretary Legal Assistant, Sun Life Assurance
One Sun Life Executive Park Company of Canada since 2000. Prior to
Wellesley Hills, MA 02481 that, assistant compliance analyst, Sun
Date of birth: December 13, 1973 Life Assurance Company of Canada,
1999-2000, compliance administrative
assistant, 1998-1999, and assistant
customer services administrator,
1996-1998.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* An interested person of the funds for purposes of Section 2(a)(19) 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, 1999. 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.
<TABLE>
<CAPTION>
NAME AND POSITION WITH AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
THE TRUST COMPENSATION FROM BENEFITS ACCRUED AS PART BENEFITS UPON FROM THE TRUST PAID
THE TRUST OF FUNDS' EXPENSES RETIREMENT TO TRUSTEES*
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Graham E. Jones $ 9,000 0 0 $ 9,000
- ------------------------------------------------------------------------------------------------------------------------
Anthony C. Paddock 9,000 0 0 9,000
- ------------------------------------------------------------------------------------------------------------------------
William N. Searcy, Jr. 10,000 0 0 10,000
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The trust is the only registered investment company managed by the
adviser.
As of April 1, 2000, 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 and its affiliates currently transact business in Canada, the United
States, the United Kingdom, Asia Pacific and South America. Sun Life of Canada
completed its demutualization on March 22, 2000. As a result of the
demutualization, a new holding company, Sun Life Financial Services of Canada
Inc. ("Sun Life Financial"), is now the ultimate parent of Sun Life of Canada
and the adviser. Sun Life Financial, a corporation organized in Canada, is a
reporting company under the Securities Exchange Act of 1934 with common shares
listed on the Toronto, New York, London, and Manila stock exchanges.
================================================================================
-26-
<PAGE>
================================================================================
The adviser is a Delaware corporation and a registered investment adviser. The
adviser provides investment management and supervisory services to pension and
profit-sharing accounts of Sun Life of Canada. Each fund will offer its shares
to separate accounts that are funding vehicles for variable contracts offered by
Sun Life of Canada and its affiliates and other insurance companies. It is also
expected that the adviser, through certain asset allocation programs offered to
holders of variable contracts offered by Sun Life of Canada and its affiliates,
will have discretion to allocate assets to the funds.
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 ("Wellington
Management") to serve as subadviser to perform its investment management duties.
In the case of Davis Financial Fund and Davis Venture Value Fund the adviser has
selected Davis Selected Advisers, L.P. ("Davis Selected Advisers"). In the case
of Value Equity Fund, Value Managed Fund, Value Mid Cap Fund and Value Small Cap
Fund and, the adviser has engaged OpCap Advisors 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.
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.
================================================================================
-27-
<PAGE>
================================================================================
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%
- -----------------------------------------------------------------------------------------------
Real Estate Fund All 0.95%
- -----------------------------------------------------------------------------------------------
Blue Chip Mid Cap Fund $0 to $300 million 0.80%
- -----------------------------------------------------------------------------------------------
above $300 million 0.75%
- -----------------------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------------
Davis Financial Fund $0 to $500 million 0.75%
- -----------------------------------------------------------------------------------------------
above $500 million 0.70%
- -----------------------------------------------------------------------------------------------
Davis Venture Value Fund $0 to $500 million 0.75%
- -----------------------------------------------------------------------------------------------
above $500 million 0.70%
- -----------------------------------------------------------------------------------------------
Value Equity Fund $0 to $400 million 0.80%
- -----------------------------------------------------------------------------------------------
above $400 million to $800 million 0.75%
- -----------------------------------------------------------------------------------------------
above $800 million 0.70%
- -----------------------------------------------------------------------------------------------
Value Managed Fund $0 to $400 million 0.80%
- -----------------------------------------------------------------------------------------------
above $400 million to $800 million 0.75%
- -----------------------------------------------------------------------------------------------
above $800 million 0.70%
- -----------------------------------------------------------------------------------------------
Value Mid Cap Fund $0 to $400 million 0.80%
- -----------------------------------------------------------------------------------------------
above $400 million to $800 million 0.75%
- -----------------------------------------------------------------------------------------------
above $800 million 0.70%
- -----------------------------------------------------------------------------------------------
Value Small Cap Fund $0 to $400 million 0.80%
- -----------------------------------------------------------------------------------------------
above $400 million to $800 million 0.75%
- -----------------------------------------------------------------------------------------------
above $800 million 0.70%
- -----------------------------------------------------------------------------------------------
</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, Real Estate Fund, Investors
Foundation Fund, Select Equity Fund and Blue Chip Mid Cap 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 May 1, 2001.
================================================================================
-28-
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Fund Total Operating Expenses
- --------------------------------------------------------- -------------------------------
<S> <C>
Money Market Fund 0.65%
Investment Grade Bond Fund 0.75%
Real Estate Fund 1.25%
Blue Chip Mid Cap Fund 1.00%
Investors Foundation Fund 0.90%
Select Equity Fund 0.90%
Davis Financial Fund 0.90%
Davis Venture Value Fund 0.90%
Value Equity Fund 0.90%
Value Managed Fund 0.90%
Value Mid Cap Fund 1.00%
Value Small Cap Fund 1.00%
</TABLE>
For the period ended December 31, 1999, the adviser waived all of the advisory
fees due to it for the period. Absent this fee waiver, the advisory fees would
have been $30,381, $77,827, $51,060, $12,685, $8,397 and $9,537 for Money Market
Fund, Investment Grade Bond Fund, Real Estate Fund, Blue Chip Mid Cap Fund,
Investors Foundation Fund and Select Equity 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 26, 2000. The advisory
agreement of each of the Blue Chip Mid Cap Fund, Investors Foundation Fund and
Select Equity Fund initially expires on August 26, 2001. The advisory agreement
of each of the Davis Financial Fund, Davis Venture Value Fund, Value Equity
Fund, Value Managed Fund, Value Mid Cap Fund and Value Small Cap Fund initially
expires on April 30, 2002. Each agreement will continue in
================================================================================
-29-
<PAGE>
================================================================================
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 SUBADVISERS. The trust and the adviser have engaged the services of
Wellington Management Company, LLP, in the case of Blue Chip Mid Cap Fund,
Investors Foundation Fund and Select Equity Fund; Davis Selected Advisers, in
the case of Davis Financial Fund and Davis Venture Value Fund; and OpCap
Advisors, in the case of Value Equity Fund, Value Managed Fund, Value Mid Cap
Fund and Value Small Cap Fund; to assist with the portfolio management of each
fund. Additional information about each Subadviser is set forth in the
prospectus.
Wellington Management Company, LLP is a Massachusetts limited liability
partnership and a federally registered investment adviser. Davis Selected
Advisers is a Colorado limited partnership and a registered investment adviser.
OpCap Advisors, a federally registered investment adviser, is a majority owned
subsidiary of Oppenheimer Capital, a federally registered investment adviser.
Oppenheimer Capital is an indirect wholly owned subsidiary of PIMCO Advisors
L.P. ("PIMCO Advisors"), a federally registered investment adviser. The general
partners of PIMCO Advisors are PIMCO Partners G.P. and PIMCO Advisors Holdings
L.P. PIMCO Partners, G.P. is a general partnership between PIMCO Holdings LLC,
a Delaware limited liability company and an indirect wholly-owned subsidiary of
Pacific Life Insurance Company, and PIMCO Partners LLC, a California limited
liability company controlled by the current Managing Directors and two former
Managing Directors of Pacific Investment Management Company, a subsidiary of
PIMCO Advisors. PIMCO Partners, G.P. is the sole general partner of PIMCO
Advisors Holdings L.P.
Terms of Subadvisory Agreements. Each Subadviser has entered into a subadvisory
agreement with the adviser and the trust on behalf of each respective Subadvised
Fund. Each 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. Each 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 each Subadviser out of its own resources; none of the
Subadvised Funds has an obligation to pay the Subadviser. Each 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>
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%
- ---------------------------------------------------------------------------------------------
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%
- ---------------------------------------------------------------------------------------------
</TABLE>
================================================================================
-30-
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Fund Asset Level Fee
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
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%
- ---------------------------------------------------------------------------------------------
Davis Financial Fund $0 to $100 million .45%
$100 to $500 million .40%
above $500 million .35%
- ---------------------------------------------------------------------------------------------
Davis Venture Value Fund $0 to $100 million .45%
$100 to $500 million .40%
above $500 million .35%
- ---------------------------------------------------------------------------------------------
Value Equity Fund $0 to $1 billion .40%
above $1 billion .30%
- ---------------------------------------------------------------------------------------------
Value Managed Fund $0 to $1 billion .40%
above $1 billion .30%
- ---------------------------------------------------------------------------------------------
Value Mid Cap Fund $0 to $1 billion .40%
above $1 billion .30%
- ---------------------------------------------------------------------------------------------
Value Small Cap Fund $0 to $1 billion .40%
above $1 billion .30%
- ---------------------------------------------------------------------------------------------
</TABLE>
During the fiscal year ended December 31, 1999, the adviser paid Wellington
Management Company, LLP subadvisory fees of $8,760, $5,617 and $6,390 for its
subadvisory services to Blue Chip Mid Cap Fund, Investors Foundation Fund and
Select Equity Fund, respectively.
================================================================================
-31-
<PAGE>
================================================================================
Each Subadviser is responsible for bearing its own costs of providing services
to each Subadvised Fund. Each 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 each 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 each 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.
Each Subadviser is responsible for making specific decisions to buy and sell
securities for each Subadvised Fund. Each 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, each 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. Each
Subadviser will be liable for losses due to (a) the Subadviser's causing
================================================================================
-32-
<PAGE>
================================================================================
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.
The subadvisory agreement with Wellington Management initially expires on August
26, 2001. The subadvisory agreement with OpCap Advisors initially expires on
April 30, 2002. The subadvisory agreement with Davis Selected Advisers
initially expires on April 30, 2002. Each subadvisory 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. Each
subadvisory 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, each Subadviser and the funds have each
adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act which imposes
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 each 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. Each 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.
A copy of the codes of ethics of each of the Trust, the adviser and each
subadviser is on public file with and available from the SEC.
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 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
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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 period ended December 31, 1999, each of the funds paid the administrator
as follows:
<TABLE>
<CAPTION>
FUND FEE
- --------------------------------------------------------------------------------
<S> <C>
Money Market Fund $35,539
- --------------------------------------------------------------------------------
Investment Grade Bond Fund 35,539
- --------------------------------------------------------------------------------
Real Estate Fund 35,539
- --------------------------------------------------------------------------------
Blue Chip Mid Cap Fund 7,986
- --------------------------------------------------------------------------------
Investors Foundation Fund 7,986
- --------------------------------------------------------------------------------
Select Equity Fund 7,986
- --------------------------------------------------------------------------------
</TABLE>
Davis Financial Fund, Davis Venture Value Fund, Value Equity Fund, Value Managed
Fund, Value Mid Cap Fund and Value Small 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.
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<PAGE>
INFORMATION ABOUT THE TRUST'S HISTORY AND ORGANIZATION
- ------------------------------------------------------
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DESCRIPTION OF THE TRUST'S SHARES. The trust is a diversified, open-end
management investment company. 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 12 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 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
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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.
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<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 mean between
the closing bid and asked prices.
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, 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
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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.
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TAXES
================================================================================
Each fund is treated as a separate entity for U.S. federal income tax purposes.
Each fund 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, each fund intends to comply with the
requirements of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets. Each fund that meets all
such requirements will not be subject to U.S. federal income tax on all
investment company taxable income and net capital gain earned by such fund,
which are distributed to shareholders in accordance with the timing and other
requirements of the Code.
In order to qualify as a regulated investment company under the Code, each fund
must, among other things, (a) derive at least 90% of its gross income for its
taxable year from interest, dividends, payments with respect to securities loans
and gains from the sale or other disposition of stock, 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 (the "90% income test"); and (b)
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 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 no
more than 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
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a separate account will be treated as being adequately diversified if the
diversification requirements under Subchapter M are satisfied and no more than
55% of the value of the account's total assets is attributable to cash and cash
items (including receivables), U.S. government securities and securities of
other regulated investment companies. Failure by a fund to both qualify as a
regulated investment company and satisfy the Section 817(h) requirements would
generally result in adverse tax treatment of the variable contract holders by
causing the variable contracts to lose their favorable tax status and requiring
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 U.S. 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 long-term capital gain in excess of net short-term capital
loss (net capital gain) are treated as long-term capital gain without regard to
the length of time shares of the fund have been held and dividends from
investment company taxable income (which includes net investment income, net
short-term capital gain in excess of net long-term capital loss, and certain net
foreign exchange gains) are treated 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 as of a record date in October, November or
December and paid the following January will be treated for U.S. 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 that hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), that fund could be subject to U.S.
federal income tax
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and additional interest charges on "excess distributions" received from such
companies or on gain from the sale of stock in such companies, even if all
income or gain actually received by the fund is timely distributed to its
shareholders. The fund would not be able to pass through to its shareholders any
credit or deduction for such a tax. An election may generally be available to
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
futures contracts and options relating to foreign currency, 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. Under
future Treasury regulations, any such transactions that are not directly related
to a fund's investment in stock or securities (or its options contracts or
futures contracts with respect to stock or securities) may have to be limited in
order to enable the fund to satisfy the 90% income test. If the net foreign
exchange loss for a year 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.
Each fund that invests in foreign countries may be subject to withholding and
other taxes imposed by foreign countries, including taxes on interest,
dividends, and capital gains, with respect to its investments in those
countries. 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 or in 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 U.S. federal income or excise tax.
Each fund that invests in certain pay in-kind securities, zero coupon
securities, deferred interest securities, or, 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 for each taxable year, which generally will be 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 U.S. federal income tax. Therefore, a fund may have to
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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.
For U.S. federal income tax purposes, each fund is permitted to carry forward a
net capital loss for any year to offset its own capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent
capital gains are offset by such losses, they would not result in U.S. federal
income tax liability to a fund and therefore are not expected to be distributed
as such to shareholders.
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/or capital gain 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
generally would be included in the federal tax basis of the shares acquired in
the other investments.
Options written or purchased and futures contracts entered into by a fund on
certain securities, indices and foreign currencies, as well as certain foreign
currency forward transactions may cause the fund to recognize gains or losses
from marking-to-market even though such options may not have lapsed, been closed
out, or exercised, or such futures or forward contracts may not have been
performed or closed out. The tax rules applicable to these contracts may affect
the characterization of some capital gains as long-term or short-term. Certain
options, futures and forward contracts relating to foreign currency may be
subject to Section 988 of the Code, as described above, and accordingly may
produce ordinary income or loss. Additionally, a fund may be required to
recognize gain if an option, forward contract, futures contract, short sale or
other transaction that is not subject to the mark-to-market rules is treated as
a
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"constructive sale" of an "appreciated financial position" held by a fund
under Section 1259 of the Code. Any net mark-to-market gains and/or gains from
constructive sales may also have to be distributed to satisfy the distribution
requirements referred to above even though a fund may receive no corresponding
cash amount, possibly requiring the disposition of portfolio securities or
borrowing to obtain the necessary cash. Losses on certain options, futures or
forward contracts and/or offsetting positions (fund securities or other
positions with respect to which a fund's risk of loss is substantially
diminished by one or more options, futures or forward contracts) may also be
deferred under the tax straddle rules of the Code, which may also affect the
characterization of capital gains or losses from straddle positions and certain
successor positions as long-term or short-term. Certain tax elections may be
available that would enable a fund to ameliorate some adverse effects of the tax
rules described in this paragraph. The tax rules applicable to options, futures
or forward contracts and straddles may affect the amount, timing and character
of a fund's income and capital gains or losses and hence of its distributions to
shareholders.
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 on these matters and on state
or local tax consequences of ownership or redemption of shares of, and receipt
of distributions from, a fund in their particular circumstances.
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BROKERAGE ALLOCATION
================================================================================
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the adviser 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 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,
================================================================================
-44-
<PAGE>
================================================================================
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 fiscal year ended December 31, 1999 and the period ended December 31,
1998, each of the following funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
FUND 1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Fund $6,262 $4,968
- --------------------------------------------------------------------------------
Blue Chip Mid Cap Fund 0 6,400
- --------------------------------------------------------------------------------
Investors Foundation Fund 0 1,898
- --------------------------------------------------------------------------------
Select Equity Fund 0 2,164
- --------------------------------------------------------------------------------
</TABLE>
Money Market Fund and Investment Grade Bond Fund paid no brokerage commissions
for the fiscal year ended December 31, 1999 and the period ended December 31,
1998.
================================================================================
-45-
<PAGE>
================================================================================
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([a-b)+1]/6/-1)
---
cd
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 would be entitled to receive
dividends. the period that
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 December 31,
1999 was 6.14%.
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 December 31, 1999 was
5.35%.
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 December
31, 1999 was 5.49%.
================================================================================
-46-
<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:
================================================================================
-47-
<PAGE>
================================================================================
T = n ---------
| ERV/P-1
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 returns for each of the following funds for the periods
ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Fund One Year Since Inception Inception Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 4.63% 4.63% 12/7/98
- --------------------------------------------------------------------------------------------------------------
Investment Grade Bond Fund (0.56%) (0.48%) 12/7/98
- --------------------------------------------------------------------------------------------------------------
Real Estate Fund (3.98%) (4.37%) 12/7/98
- --------------------------------------------------------------------------------------------------------------
Blue Chip Mid Cap Fund n/a 27.07% 9/1/99
- --------------------------------------------------------------------------------------------------------------
Investors Foundation Fund n/a 12.13% 9/1/99
- --------------------------------------------------------------------------------------------------------------
Select Equity Fund n/a 26.40% 9/1/99
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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 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.
================================================================================
-48-
<PAGE>
================================================================================
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.
================================================================================
-49-
<PAGE>
================================================================================
FINANCIAL STATEMENTS
================================================================================
Each of Money Market Fund's, Investment Grade Bond Fund's, Real Estate Fund's,
Blue Chip Mid Cap Fund's, Investors Foundation Fund's and Select Equity Fund's
audited financial statements for the fiscal period ended December 31, 1999 from
the funds' annual reports filed with the SEC on February 22, 2000 are
incorporated by reference into this statement of additional information. Davis
Financial Fund, Davis Venture Value Fund, Value Equity Fund, Value Managed Fund,
Value Mid Cap Fund and Value Small Cap Fund each have not commenced operations
as of the date of this statement of additional information. Those financial
statements, including the financial highlights in the prospectus, have been
audited by Deloitte & Touche LLP, independent public accountants, as indicated
in their report with respect to the financial statements and are included in
reliance upon the authority of Deloitte & Touche LLP as experts in accounting
and auditing in giving their report.
================================================================================
-50-
<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.
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.
================================================================================
A-1
<PAGE>
================================================================================
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.
================================================================================
A-2
<PAGE>
================================================================================
BB, B: Debt rated BB and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
DUFF & PHELPS CREDIT RATING CO.
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB: Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB: Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
FitchIBCA
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
development, short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
================================================================================
A-3
<PAGE>
================================================================================
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.
================================================================================
A-4
<PAGE>
SUN CAPITAL ADVISERS TRUST
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Agreement and Declaration of Trust, dated July 13, 1998(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)
(d)(8) Form of InvesTment Advisory Agreement between Sun Capital
Advisers, Inc. and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Value Equity Fund(5)
(d)(9) Form of Investment Advisory Agreement between Sun Capital
Advisers, Inc. and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Value Mid Cap Fund(5)
(d)(10) Form of Investment Advisory Agreement between Sun Capital
Advisers, Inc. and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Value Small Cap Fund(5)
(d)(11) Form of Investment Advisory Agreement between Sun Capital
Advisers, Inc. and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Value Managed Fund(5)
(d)(12) Form of Investment Advisory Agreement between Sun Capital
Advisers, Inc. and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Davis Venture Value Fund(5)
1
<PAGE>
(d)(13) Form of Investment Advisory Agreement between Sun Capital
Advisers, Inc. and Sun Capital Advisers Trust, on behalf of its
series, Sun Capital Davis Financial Fund(5)
(d)(14) Form of Investment Advisory Agreement for Subadviser by and among
Sun Capital Advisers, Inc., OpCap Advisors and Sun Capital
Advisers Trust, on behalf of its series, Sun Capital Value Equity
Fund(5)
(d)(15) Form of Investment Advisory Agreement for Subadviser by and among
Sun Capital Advisers, Inc., OpCap Advisors and Sun Capital
Advisers Trust, on behalf of its series, Sun Capital Value Mid
Cap Fund(5)
(d)(16) Form of Investment Advisory Agreement for Subadviser by and among
Sun Capital Advisers, Inc., OpCap Advisors and Sun Capital
Advisers Trust, on behalf of its series, Sun Capital Value Small
Cap Fund(5)
(d)(17) Form of Investment Advisory Agreement for Subadviser by and among
Sun Capital Advisers, Inc., OpCap Advisors and Sun Capital
Advisers Trust, on behalf of its series, Sun Capital Value
Managed Fund(5)
(d)(18) Form of Investment Advisory Agreement for Subadviser by and among
Sun Capital Advisers, Inc., Davis Selected Advisers, L.P. and Sun
Capital Advisers Trust, on behalf of its series, Sun Capital
Davis Venture Value Fund(5)
(d)19) Form of Investment Advisory Agreement for Subadviser by and among
Sun Capital Advisers, Inc., Davis Selected Advisers, L.P. and Sun
Capital Advisers Trust, on behalf of its series, Sun Capital
Davis Financial Fund(5)
(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 Certified 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) Not Applicable
(o) Not Applicable
(p)(1) Code of Ethics of Sun Capital Advisers Trust*
(p)(2) Code of Ethics of Sun Capital Advisers, Inc.*
(p)(3) Code of Ethics of Wellington Management Company, LLP*
(p)(4) Code of Ethics of OpCap Advisors*
(p)(5) Code of Ethics of Davis Selected Advisers, L.P.*
(q)(1) Power of Attorney (Anderson, Jones, Paddock, Prieur, Searcy)(2)
(q)(2) Power of Attorney (Alban)(3)
* Filed herewith.
2
<PAGE>
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.
5 Filed as an exhibit to Post-Effective Amendment No. 4 on February
16, 2000 and incorporated by reference herein.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
The Registrant was organized by 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 (U.S.) 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 below, 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.
3
<PAGE>
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 subadvisers to certain of its series, Wellington Management
Company LLP (File No. 801-15908), OpCap Advisors (File No. 801-27180) and Davis
Selected Advisers, L.P. (File No. 801-31648). The following sections of the
Forms ADV of Sun Capital Advisers, Inc., Wellington Management Company LLP,
OpCap Advisors and Davis Selected Advisers, L.P. are incorporated herein by
reference:
(a) Items 1 and 2 of Part II; and
(b) Item 6, Business Background, of each Schedule D.
ITEM 27. PRINCIPAL UNDERWRITERS
None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the Rules promulgated thereunder are
maintained by the Registrant, in whole or in part, at its principal executive
office at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, at
the offices of Wellington Management Company LLP at 75 State Street, Boston,
Massachusetts 02109, OpCap Advisors at 1345 Avenue of the Americas, New York,
New York, 10105-4800 or Davis Selected Advisers, L.P. at 124 East Marcy Street,
Sante Fe, New Mexico 87501. 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.
4
<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 certififes that
it meets all of the requirements for effectiveness of this registaration
statement under Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-effective Amendment No. 5 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Wellesley, The
Commonwealth of Massachusetts, on the 28th day of April, 2000 under the
Securities Act of 1933.
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. 5 has been signed below by the following
persons in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ C. James Prieur* Trustee April 28, 2000
- ---------------------------------
C. James Prieur
/s/ James M.A. Anderson Chief Executive Officer April 28, 2000
- --------------------------------- and Trustee
James M.A. Anderson
/s/ James F. Alban* Chief Financial Officer April 28, 2000
- ---------------------------------
James F. Alban
/s/ Graham E. Jones* Trustee April 28, 2000
- ---------------------------------
Graham E. Jones
/s/ Anthony C. Paddock* Trustee April 28, 2000
- ---------------------------------
Anthony C. Paddock
/s/ William N. Searcy* Trustee April 28, 2000
- ---------------------------------
Willaim N. Searcy
By: /s/ James M.A. Anderson
-----------------------------
James M.A. Anderson
Power of Attorney
5
<PAGE>
EXHIBIT INDEX
Exhibit Number
--------------
(j) Consent of Certified Public Accountants
(p)(1) Code of Ethics of Sun Capital Advisers Trust
(p)(2) Code of Ethics of Sun Capital Advisers, Inc.
(p)(3) Code of Ethics of Wellington Management Company, LLP
(p)(4) Code of Ethics of OpCap Advisors
(p)(5) Code of Ethics of Davis Selected Advisers, L.P.
6
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 5 to the Registration Statement on Form N-1A of Sun Capital Advisers Trust
(File Nos. 333-59093 and 811-08879) of our report dated February 3, 2000
appearing in the annual report to shareholders for the year ended December 31,
1999, of Sun Capital Money Market Fund, Sun Capital Investment Grade Bond Fund,
Sun Capital Real Estate Fund, Sun Capital Blue Chip Mid Cap Fund, Sun Capital
Select Equity Fund and Sun Capital Investors Foundation Fund, and to the
references to us under the headings "Financial Highlights" and "Additional
Information" in the Prospectus and "Independent Public Accountants" and
"Financial Statements" in the Statement of Additional Information, all of which
are part of this Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 26, 2000
<PAGE>
Sun Capital Advisers Trust
--------------------------
Code of Ethics
--------------
I. INTRODUCTION
This Code of Ethics is divided into four parts. The first part contains
the Statement of General Principles and Legal Requirements for Sun
Capital Trust and definitions not otherwise set forth herein. The
second part contains provisions applicable to access persons of Sun
Capital Trust who are also access persons of Sun Capital Advisers, Inc.
("Sun Capital"). The third part of this Code of Ethics contains
provisions relating exclusively to the disinterested Trustees of Sun
Capital Trust. The fourth part contains record keeping and other
miscellaneous provisions.
The Board of Trustees of Sun Capital Trust has determined that the high
standards established by Sun Capital may without change, be
appropriately applied by Sun Capital Trust to those access persons of
Sun Capital Trust who are also access persons of Sun Capital and,
accordingly, may have opportunities for knowledge of and, in some
cases, influence over, Sun Capital Trust portfolio transactions.
Trustees who are unaffiliated with Sun Capital (i.e., disinterested
Trustees) have comparatively less current knowledge and considerably
less influence over specific purchases and sales of securities by Sun
Capital Trust. Therefore, this Code of Ethics contains separate
provisions exclusively applicable to such disinterested Trustees.
A. Statement of General Principles
-------------------------------
It is the policy of Sun Capital Trust that no access person
shall engage in any act, practice or course of conduct that
would violate the provisions of Section 17(j) of the
Investment Company Act of 1940, as amended (the "1940 Act"),
and Rule 17j-1 thereunder. The fundamental position of Sun
Capital Trust is, and has been, that each access person shall
place at all times the interests of Sun Capital Trust and its
shareholders first. Accordingly, private financial
transactions by access persons of Sun Capital Trust must be
conducted consistent with this Code of Ethics and in such a
manner as to avoid any actual or potential conflict of
interest or any abuse of an access person's position of trust
and responsibility. Further, access persons should not take
inappropriate advantage of their positions with or on behalf
of Sun Capital Trust.
Without limiting in any manner the fiduciary duty owed by
access persons to Sun Capital Trust or the provisions of this
Code of Ethics, it should be noted that Sun Capital Trust
considers it proper that purchases
<PAGE>
and sales be made by its access persons in the marketplace of
securities owned by Sun Capital Trust; provided, however, that
such securities transactions comply with the spirit of, and
the specific restrictions and limitations set forth in, this
Code of Ethics. Such personal securities transactions should
also be made in amounts consistent with the normal investment
practice of the person involved, and with an investment,
rather than a trading, outlook. In making personal investment
decisions with respect to any security, extreme care must be
exercised by access persons to insure that the prohibitions of
this Code of Ethics are not violated.
It bears emphasis that technical compliance with the
procedures, prohibitions and limitations of this Code of
Ethics will not automatically insulate from scrutiny personal
securities transactions which show a pattern of abuse by an
access person of his or her fiduciary duty to Sun Capital
Trust.
B. Legal Requirements
------------------
Section 17(j) of the 1940 Act provides, among other things,
that it is unlawful for any affiliated person of Sun Capital
Trust to engage in any act, practice or course of business in
connection with the purchase or sale, directly or indirectly,
by such affiliated person of any security held or to be
acquired by Sun Capital Trust in contravention of such rules
and regulations as the Securities and Exchange Commission (the
"Commission") may adopt to define and prescribe means
reasonably necessary to prevent such acts, practices or
courses of business as are fraudulent, deceptive or
manipulative. Pursuant to Section 17(j), the Commission has
adopted Rule 17j-1 which states that it is unlawful for any
affiliated person of Sun Capital Trust in connection with the
purchase or sale of a security held or to be acquired (as
defined in the Rule) by Sun Capital Trust:
1. To employ any device, scheme or artifice to defraud
Sun Capital Trust;
2. To make to Sun Capital Trust any untrue statements or
a material fact or omit to state to Sun Capital Trust
a material fact necessary in order to make the
statements made, in light of the circumstances under
which they were made, not misleading;
3. To engage in any act, practice or course of business
which operates or would operate as a fraud or deceit
upon Sun Capital Trust; or
2
<PAGE>
4. To engage in any manipulative practice with respect
to Sun Capital Trust.
C. Definitions
-----------
For purposes of this Code of Ethics, the following definitions
shall apply:
1. The term "access person" with respect to Sun Capital
Trust shall mean any trustee, officer or advisory
person (as defined below) of Sun Capital Trust. The
term "access person" with respect to Sun Capital
shall mean any director, officer or advisory person
(as defined below) of Sun Capital.
2. The term "advisory person" shall mean: (i) every
employee of Sun Capital Trust and Sun Capital (or of
any company in a control relationship to Sun Capital
Trust or Sun Capital) who, in connection with his or
her regular functions or duties, makes, participates
in, or obtains information regarding the purchase or
sale of a security (as defined below) by Sun Capital
Trust, or whose functions relate to the making of any
recommendations with respect to such purchases or
sales; and (ii) every natural person in a control
relationship to Sun Capital Trust and Sun Capital who
obtains information concerning recommendations made
to Sun Capital Trust with regard to the purchase or
sale of a security. The term "advisory person" shall
not mean for purposes of this Code of Ethics, any
employee of any subadviser to Sun Capital Trust that
is not otherwise affiliated with Sun Capital.
3. The term "beneficial ownership" shall mean a direct
or indirect "pecuniary interest" that is held or
shared by a person directly or indirectly (through
any contract, arrangement, understanding,
relationship or otherwise) in a security. The term
generally means the opportunity directly or
indirectly to provide or share in any profit derived
from a transaction in a security. An indirect
pecuniary interest in securities by a person would be
deemed to exist as a result of: (i) ownership of
securities by any of such person's immediate family
members sharing the same household (including child,
stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother- or
father-in-law, sister- or brother-in-law, and son- or
daughter-in-law) but the presumption of such
beneficial ownership may be rebutted; (ii) the
person's partnership interest in the portfolio
securities held by a general or limited partnership;
(iii) the existence of a performance-related fee (not
simply an asset-based fee) received by such person as
broker,
3
<PAGE>
dealer, investment adviser or manager to a securities
account; (iv) the person's right to receive dividends
from a security provided such right is separate or
separable from the underlying securities; (v) the
person's interest in securities held by a trust under
certain circumstances; and (vi) the person's right to
acquire securities through the exercise or conversion
of a "derivative security" (which term excludes (a) a
privilege at a price that is not fixed, and (b) a
security giving rise to the right to receive such
other security only pro rata by virtue of a merger,
consolidation or exchange offer involving the issuer
of the first security).
4. The term "Compliance Review Officer" shall mean the
officer of Sun Capital Trust designated from time to
time by the Board of Trustees of Sun Capital Trust to
receive and review reports of purchases and sales by
access persons. The term "Alternate Review Officer"
shall mean the officer of Sun Capital Trust
designated from time to time by the Board of Trustees
of Sun Capital Trust to receive and review reports of
purchases and sales by the Review Officer, and who
shall act in all respects in the manner prescribed
herein for the Review Officer.
5. The term "control" shall mean the power to exercise a
controlling influence over the management or policies
of Sun Capital Trust or Sun Capital, unless such
power is solely the result of an official position
with Sun Capital Trust or Sun Capital.
6. The term "disinterested Trustee" shall mean a trustee
of Sun Capital Trust who is not an "interested
person" of Sun Capital Trust within the meaning of
Section 2(a)(19) of the 1940 Act.
7. The term "material non-public information" with
respect to an issuer shall mean information, not yet
released to the public, that would have a substantial
likelihood of affecting a reasonable investor's
decision to buy or sell any securities of such
issuer.
8. The term "purchase" shall include the writing of an
option to purchase.
9. The term "sale" shall include the writing of an
option to sell.
10. The term "security" shall have the meaning set forth
in Section 2(a)(36) of the 1940 Act, except that it
shall not include shares of registered open-end
investment companies, securities issued by the United
States government, short-term securities which are
4
<PAGE>
"government securities" within the meaning of Section
2(a)(16) of the 1940 Act, bankers' acceptances, bank
certificates of deposit, commercial paper and such
other money market instruments as may be designated
from time to time by the Board of Trustees.
11. A security is "being considered for purchase or sale"
when a recommendation to purchase or sell a security
has been made and communicated and, with respect to
the person making the recommendation, when such
person seriously considers making such a
recommendation.
12. The term "significant remedial action" shall mean any
action that has a material financial effect upon the
access person, such as terminating, suspending or
demoting the access person, imposing a substantial
fine or requiring the disgorging of profits.
13. The term "Sun Capital Trust" shall mean Sun Capital
Trust, the Delaware business trust, and any series of
Sun Capital Trust.
II. Rules Applicable to Access Persons of Sun Capital Trust Who Are Also
Access Persons of Sun Capital
A. Incorporation of Sun Capital Code of Ethics
-------------------------------------------
1. The provisions of the Code of Ethics of Sun Capital,
which is attached as Appendix A hereto, are
incorporated herein by reference as Sun Capital
Trust's Code of Ethics applicable to access persons
(other than the Disinterested Trustees) of Sun
Capital Trust who are also access persons of Sun
Capital.
2. A violation of Sun Capital's Code of Ethics shall
constitute a violation of this Code of Ethics.
B. Reports
-------
Access persons of Sun Capital Trust who are access persons of
Sun Capital shall file the reports required under Sun
Capital's Code of Ethics with the Compliance Review Officer
and, if the Compliance Review Officer is an access person of
Sun Capital Trust, he or she shall submit his or her reports
to the Alternate Compliance Review Officer.
5
<PAGE>
III. Rules Applicable to Disinterested Trustees
A. Prohibited Activities
---------------------
While the scope of actions which may violate the Statement of
General Principles set forth above cannot be defined exactly,
such actions would always include at least the following
prohibited activities.
1. No disinterested Trustee shall, directly or
indirectly, purchase or sell securities in such a way
that the disinterested Trustee knew, or reasonably
should have known, that such securities transactions
compete in the market with actual or considered
securities transactions for Sun Capital Trust, or
otherwise personally act to injure Sun Capital
Trust's securities transactions.
2. No disinterested Trustee shall use the knowledge of
securities purchased or sold by Sun Capital Trust or
securities being considered for purchase or sale by
Sun Capital Trust to profit personally, directly or
indirectly, by the market effect of such
transactions.
3. No disinterested Trustee shall, directly or
indirectly, communicate to any person who is not an
access person of Sun Capital Trust any material
non-public information relating to Sun Capital Trust
or any issuer of any security owned by Sun Capital
Trust, including, without limitation, the purchase or
sale or considered purchase or sale of a security on
behalf of Sun Capital Trust.
B. Exempt Transactions and Conduct
-------------------------------
The Statement of General Principles and the Prohibited
Activities set forth in the above Sections I.B and III.A,
respectively, shall not be deemed to be violated by any of the
following transactions:
1. Purchase or sales for an account over which the
disinterested Trustee has no direct or indirect
influence or control;
2. Purchases or sales which are non-volitional on the
part of the disinterested Trustee;
3. Purchases which are part of an automatic dividend
reinvestment plan;
6
<PAGE>
4. Purchases made by exercising rights distributed by an
issuer pro rata to all holders of a class of its
securities, to the extent such rights were acquired
by the disinterested Trustee from the issuer, and
sales of such rights so acquired;
5. Tenders of securities pursuant to tender offers which
are expressly conditioned on the tender offer's
acquisition of all of the securities of the same
class; and
6. Purchases or sales for which the disinterested
Trustee has received prior written approval from Sun
Capital Trust. Prior approval shall be granted only
if a purchase or sale of securities is consistent
with the purposes of this Code of Ethics, Section
17(j) of the 1940 Act and Rule 17j-1 thereunder.
C. Personal Reporting Requirements
-------------------------------
No disinterested Trustee shall be required to submit to Sun
Capital Trust a report of any securities transactions during
each quarterly period in which such Trustee has, or by reason
of such transactions acquires or disposes of, any beneficial
ownership of a security (whether or not one of the exemptions
listed in Section B applies) unless such Trustee, at the time
of that transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a trustee of Sun
Capital Trust, should have known that, during the fifteen (15)
day period immediately preceding the date of the transaction
by the Trustee such security was purchased or sold by Sun
Capital Trust or such security was being considered by Sun
Capital Trust or Sun Capital for purchase or sale by Sun
Capital Trust. Any required report shall be in the form
annexed hereto as Form I, or in similar form (such as a
computer printout) and shall be made not later than ten (10)
days after the end of each calendar quarter in which the
transaction(s) to which the report relates was effected.
D. Annual Certification of Compliance
----------------------------------
All disinterested Trustees shall certify annually on the form
annexed hereto as Form II that they (i) have read and
understand this Code of Ethics and recognize that they are
subject hereto, (ii) have complied with the requirements of
this Code of Ethics and (iii) have disclosed or reported all
personal securities transactions required to be disclosed or
reported pursuant to the requirements of this Code of Ethics.
E. Joint Participation
-------------------
7
<PAGE>
Disinterested Trustees should be aware that a specific
provision of the 1940 Act prohibits such persons, in the
absence of an order of the Commission, from effecting a
transaction in which Sun Capital Trust is a "joint or a joint
and several participant" with such person. Any transaction
which suggests the possibility of a question in this area
should be presented to legal counsel for review.
IV. MISCELLANEOUS
A. Recordkeeping Requirements
--------------------------
Sun Capital Trust shall maintain and preserve in an easily
accessible place:
1. a copy of this Code of Ethics (and any prior code of
ethics that was in effect at any time during the past
five years) for a period of five years;
2. a record of any violation of this Code of Ethics and
of any action taken as a result of such violation for
a period of five years following the end of the
fiscal year in which the violation occurs;
3. a copy of each report (or computer printout)
submitted under this Code of Ethics for a period of
five years, only those reports submitted during the
previous two years must be maintained and preserved
in an easily accessible place; and
4. a list of all persons who are, or within the past
five years were, required to make reports pursuant to
this Code of Ethics.
B. Confidentiality
---------------
All information obtained from any access person hereunder
shall be kept in strict confidence by Sun Capital Trust,
except that reports of securities transactions hereunder will
be made available to the Commission or any other regulatory or
self-regulatory organization to the extent required by law or
regulation.
C. Annual Review by the Board of Trustees
--------------------------------------
Sun Capital Trust's President must prepare an annual report to
the Sun Capital Trust's Board of Trustees setting forth the
following information relating to compliance with this Code of
Ethics during the previous year:
8
<PAGE>
1. A summary of existing procedures concerning personal
investing and, for the Board's approval, any changes
in the procedures made during the past year;
2. A report of any violations requiring significant
remedial action during the past year; and
3. A summary of any recommended changes, for the Board's
approval, in existing restrictions or procedures
based upon Sun Capital Trust's experience under its
Code of Ethics, evolving industry practices or
developments in applicable laws or regulations.
D. Disclosure of Personal Securities Transactions
----------------------------------------------
Sun Capital Trust undertakes to include in its Registration
Statement disclosure relating to whether access persons are
permitted to engage in personal securities transactions and
the general restrictions and procedures by which access
persons are governed in those transactions.
E. The Subadvisers to Sun Capital Trust
------------------------------------
The Board of Trustees recognizes that the portfolio of one or
more series of Sun Capital Trust may be managed by a
Subadviser that is not otherwise affiliated with Sun Capital
Adviser. Any such Subadviser will be subject to its own code
of ethics.
Any Subadviser is required to submit quarterly to the
Compliance Review Officer a report on FORM III that there have
been no violations of the Subadviser's code of ethics during
the most recent calendar quarter. If there have been any
violations of the Subadviser's code of ethics, the Subadviser
must submit a detailed report of such violations and what
remedial action, if any, was taken.
A copy of Sun Capital Trust's Code of Ethics must be supplied
to each Subadviser at the time that the Subadviser's services
are engaged on behalf of a series of Sun Capital Trust. A copy
of the Subadviser's code of ethics must be submitted to Sun
Capital Trust at that same time.
9
<PAGE>
F. Amendment to Sun Capital's Code of Ethics
-----------------------------------------
Any amendments to Sun Capital's Code of Ethics shall be deemed
an amendment to this Code of Ethics effective thirty (30) days
after written notice of each amendment shall have been
received by the Assistant Secretary of Sun Capital Trust,
unless Sun Capital Trust's Board of Trustees expressly
determines that such amendment shall become effective at an
earlier date or shall not be adopted.
G. Interpretation
--------------
Sun Capital Trust's Board of Trustees may from time to time
adopt such interpretations of this Code of Ethics as it deems
appropriate.
10
<PAGE>
SUN CAPITAL ADVISERS TRUST
SUN CAPITAL ADVISERS, INC.
FORM I
Quarterly Transactions Report
Every report on Form I shall be made not later than ten (10) days after
the end of each calendar quarter in which the transaction(s) to which Form I
relates was effected and shall contain the following information:
1. The date of each transaction, the title, class and number of shares,
interest rate and maturity date (if applicable) and the principal
amount of each security involved.
2. The nature of each transaction (i.e., purchase, sale or other type of
acquisition or disposition).
3. The price at which each transaction was effected.
4. The name of the broker, dealer or bank with or though whom each
transaction was effected.
5. If you have opened a brokerage account in the previous quarter that
held securities (not just covered securities) in which you have a
beneficial interest, please provide the following information for each
account opened (attach additional sheets as necessary):
1. Name of Access Person
--------------------------------
2. If different than #1, name of
the person in whose name the
account is held
--------------------------------
3. Relationship of #2 to #1
--------------------------------
4. Broker, dealer or bank at
which account is maintained
--------------------------------
5. Account number(s)
--------------------------------
6. Phone number(s) of broker
--------------------------------
7. Date on which account was
opened
--------------------------------
6. If no transactions in any securities required to be reported on this
FORM I during the most recent calendar quarter occurred and you have
not opened any brokerage account in which you have a beneficial
interest during the most recent calendar quarter occurred, check this
block and sign below: /__/
I certify that this FORM I contains a true statement of my personal
securities transactions during the most recent calendar quarter.
-----------------------------------
Name and title
Date:
<PAGE>
SUN CAPITAL ADVISERS TRUST
FORM II
Annual Certification of Trustee
I certify that I have received a copy of Sun Capital Advisers Trust's
Code of Ethics, (i) have read and understand this Code of Ethics and recognize
that I am subject thereto, (ii) have complied with the requirements of the Code
of Ethics and (iii) have disclosed or reported all personal securities
transactions required to be disclosed or reported pursuant to the requirements
of the Code of Ethics.
Date:_______________________ Name:_______________________
Title:______________________
<PAGE>
SUN CAPITAL ADVISERS TRUST
FORM III
Certificate of Subadviser
XYZ Subadviser, Inc., which serves as subadviser to Sun Capital _______
Fund, has adopted and currently maintains a written Code of Ethics as is
required by Rule 17j-1 under the Investment Company Act of 1940.
Every access person, as defined by Rule 17j-1, of XYZ Subadviser, Inc.
currently reports their securities transactions at least quarterly, as is
required by this rule.
I have examined these reports and hereby certify that based upon my
examination, I have concluded no violations of the Code by any "access person"
occurred for the quarter ended _________________.
Dated: _____________________ By: _______________________________
Name: _____________________________
Title: _____________________________
<PAGE>
SUN CAPITAL ADVISERS, INC.
FORM IV
Annual Certification of Access Person
I certify that I have received a copy of Sun Capital Advisers, Inc.'s
Code of Ethics, (i) have read and understand this Code of Ethics and recognize
that I am subject thereto, (ii) have complied with the requirements of the Code
of Ethics and (iii) have disclosed or reported all personal securities
transactions required to be disclosed or reported pursuant to the requirements
of the Code of Ethics.
Date:_______________________ Name:______________________
Title:_____________________
<PAGE>
Sun Capital Advisers, Inc.
--------------------------
Code of Ethics
--------------
I. Introduction
------------
This Code of Ethics ("this Code") is issued as a Supplementary Code to
Sun Life of Canada's Code of Business Conduct which has been adopted by
Sun Capital Advisers, Inc. ("Sun Capital").
The purpose of this Code is to support the Code of Business Conduct's
commitment to fair dealing and integrity on the part of Sun Capital and
its employees. In particular, it is aimed at ensuring that the valid
interests of Sun Capital and its customers always take precedence over
the personal interests of employees.
The policies in this Code reflect Sun Capital's desire to detect and
prevent not only situations involving actual or potential conflicts of
interest, but those situations involving only an appearance of conflict
or of unethical conduct. The mere appearance of impropriety could
damage Sun Capital's reputation.
II. Statement of General Principles
-------------------------------
It is the policy of Sun Capital that no access person shall engage in
any act, practice or course of conduct that would violate this Code or
the provisions of Section 17(j) of the Investment Company Act of 1940,
as amended (the "1940 Act"), and Rule 17j-1 thereunder. The fundamental
position of Sun Capital is, and has been, that each access person shall
place at all times the interests of Sun Capital's clients first.
Accordingly, private financial transactions by access persons of Sun
Capital must be conducted in accordance with this Code and in such a
manner as to avoid any actual or potential conflict of interest or any
abuse of an access person's position of trust and responsibility.
Further, access persons should not take inappropriate advantage of
their positions with or on behalf of any client of Sun Capital.
Without limiting in any manner the fiduciary duty owed by access
persons to the clients of Sun Capital or the provisions of this Code,
it should be noted that Sun Capital considers it proper that purchases
and sales be made by its access persons in the marketplace of
securities owned by the clients of Sun Capital; provided that such
securities transactions comply with the spirit of, and the specific
restrictions and limitations set forth in, this Code. Such personal
securities transactions should also be made in amounts consistent with
the normal investment practice of the person involved and, with respect
to investment personnel, with an investment, rather than a trading,
outlook. Not only does this policy encourage investment freedom and
result in investment experience, but it also fosters a continuing
personal interest in such investments by those responsible for the
continuous supervision of the clients' portfolios. It is also evidence
of confidence in the investments made for clients.
In making personal investment decisions with respect to any security,
however, extreme care must be exercised by access persons to insure
that the prohibitions of this Code are
<PAGE>
not violated. Further, personal investing by an access person should be
conducted in such a manner so as to eliminate the possibility that the
access person's time and attention are devoted to his or her personal
investments at the expense of time and attention that should be devoted
to management of a client's portfolio.
It bears emphasis that technical compliance with the procedures,
prohibitions and limitations of this Code will not automatically
insulate from scrutiny personal securities transactions which show a
pattern of abuse by an access person of his or her fiduciary duty to
any client of Sun Capital.
III. Legal Requirements
------------------
Section 17(j) the 1940 Act provides, among other things, that it is
unlawful for any affiliated person of Sun Capital or Sun Capital
Advisers Trust (the "Trust") to engage in any act, practice or course
of business in connection with the purchase or sale, directly or
indirectly, by such affiliated person of any security held or to be
acquired by the Trust in contravention of such rules and regulations as
the Securities and Exchange Commission (the "Commission") may adopt to
define and prescribe means reasonably necessary to prevent such acts,
practices or courses of business as fraudulent, deceptive or
manipulative. Pursuant to Section 17(j), the Commission has adopted
Rule 17j-1 which states that it is unlawful for any affiliated person
of Sun Capital or of the Trust in connection with the purchase or sale
of a security held or to be acquired (as defined in the Rule) by the
Trust:
1. To employ any device, scheme or artifice to defraud the Trust;
2. To make to the Trust any untrue statements of a material fact
or omit to state to the Trust a material fact necessary in
order to make the statements made, in light of the
circumstances under which they were made, not misleading;
3. To engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the Trust;
or
4. To engage in any manipulative practice with respect to the
Trust.
IV. Definitions
-----------
For purposes of this Code, the following definitions shall apply:
1. The term "access person" shall mean any director, officer or
advisory person (as defined below) of Sun Capital or the
Trust.
2. The term "acquisition" or "acquire" includes any purchase and
the receipt of any gift of a covered security (as defined
below).
3. The term "advisory person" shall mean: (i) every employee of
Sun Capital (or of any company in a control relationship to
Sun Capital, such as Sun Life Assurance Company of Canada)
who, in connection with his or her regular functions or
2
<PAGE>
duties, makes, participates in, or obtains information
regarding the purchase or sale of covered securities (as
defined below) by the Trust, or whose functions relate to the
making of any recommendations with respect to such purchases
or sales; and (ii) every natural person in a control
relationship to Sun Capital who obtains information concerning
recommendations made to a client with regard to the purchase
or sale of covered securities. The term "advisory person"
shall not mean, for purposes of this Code, any employee of any
subadviser engaged by Sun Capital on behalf of the Trust that
is not otherwise affiliated with Sun Capital, it being
expected that such persons shall instead be subject to the
Code of Ethics of such subadviser.
4. The term "beneficial ownership" shall mean a direct or
indirect "pecuniary interest" that is held or shared by a
person directly or indirectly (through any contract,
arrangement, understanding, relationship or otherwise) in a
security. The term generally means the opportunity directly or
indirectly (through any contract, arrangement, understanding,
relationship or otherwise) to provide or share in any profit
derived from a transaction in a security. An indirect
pecuniary interest in securities by a person would be deemed
to exist as a result of: (i) ownership of securities by any of
such person's immediate family members sharing the same
household (including child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother- or
father-in-law, sister- or brother-in-law, and son- or
daughter-in-law) but the presumption of such beneficial
ownership may be rebutted; (ii) the person's partnership
interest in the portfolio securities held by a general or
limited partnership which such person controls; (iii) the
existence of a performance-related fee (not simply an
asset-based fee) received by such person as broker, dealer,
investment adviser or manager to a securities account; (iv)
the person's right to receive dividends from a security even
if such right is separate or separable from the underlying
securities; (v) the person's interest in securities held by a
trust under certain circumstances; and (vi) the person's right
to acquire securities through the exercise or conversion of a
"derivative security" (which term excludes: (a) a broad-based
index option or future; (b) a right with an exercise or
conversion privilege at a price that is not fixed; and (c) a
security giving rise to the right to receive such other
security only pro rata and by virtue of a merger,
consolidation or exchange offer involving the issuer of the
first security).
5. The term "Compliance Review Officer" shall mean the officer or
employee of Sun Capital or an affiliate designated from time
to time by Sun Capital to receive and review reports of
purchases and sales by access persons. The term "Alternate
Compliance Review Officer" shall mean the officer or employee
of Sun Capital or an affiliate designated from time to time by
Sun Capital to receive and review reports of purchases and
sales by the Compliance Review Officer, and who shall act in
all respects in the manner prescribed herein for the
Compliance Review Officer. The Adviser shall maintain the
names of the officers who are designated as Compliance Review
Officer and Alternate Compliance Review Officer.
6. The term "control" shall mean the power to exercise a
controlling influence over
3
<PAGE>
the management or policies of Sun Capital, unless such power
is solely the result of an official position with Sun Capital.
7. The term "covered security" means a security as defined in
Section 2(a)(36) of the 1940 Act, which defines "security" as
any note, stock, treasury stock, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided
interest in oil, gas, or other mineral rights, any put, call,
straddle, option, or privilege on any security (including a
certificate of deposit) or on any group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to
foreign currency, or, in general, any interest or instrument
commonly known as a "security," or any certificate of interest
or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to
or purchase, any of the foregoing; except that it shall not
include:
a. shares of registered open-end investment companies
b. direct obligations of the government of the United
States
c. bankers' acceptances
d. bank certificates of deposit
e. commercial paper
f. high quality, short term debt instruments, such as
repurchase agreements or
g. any other security determined by the Securities and
Exchange Commission or its staff to be excluded from
the definition of covered security under Rule 17j-1
under the 1940 Act.
8. The term "initial public offering" shall mean an offering of
securities registered under the Securities Act of 1933, as
amended, the issuer of which, immediately before registration,
was not subject to the reporting requirements of Sections 13
or 15(d) of the Securities Exchange Act of 1934.
9. The term "Investment Company" shall mean Sun Capital Advisers
Trust and any other management investment company registered
as such under the 1940 Act and for which Sun Capital is the
investment adviser.
10. The term "investment personnel" shall mean all portfolio
managers of Sun Capital and other advisory persons who assist
the portfolio managers in making investment decisions for an
Investment Company, including, but not limited to, analysts
and traders of Sun Capital.
4
<PAGE>
11. The term "limited offering" shall mean an offering that is
exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) or 4(6) of such Act or Rule
504, 505 or 506 thereunder.
12. The term "material non-public information" with respect to an
issuer shall mean information, not yet released to the public,
that would have a substantial likelihood of affecting a
reasonable investor's decision to buy or sell any securities
of such issuer.
13. The term "portfolio manager" shall mean any individual
designated as a portfolio manager by Sun Capital (or any other
company in a control relationship to Sun Capital, such as Sun
Life Assurance Company of Canada).
14. The term "purchase" shall include the writing of an option to
purchase, and the receipt of, through a gift or any other
acquisition, a security.
15. The term "sale" shall include the writing of an option to sell
and the making of a gift.
16. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making
such a recommendation.
V. Substantive Restrictions on Personal Trading Activities - Prohibited
--------------------------------------------------------------------
Activities
----------
While the scope of actions which may violate the Statement of General
Principles set forth above cannot be defined exactly, such actions
would always include at least the following prohibited activities.
1. Competing with Client Trades. No access person shall, directly
or indirectly, purchase or sell securities if the access
person knows, or reasonably should know, that such securities
transactions compete in the market with actual or considered
securities transactions for any client of Sun Capital, or
otherwise personally act to injure any client's securities
transactions.
2. Personal Use of Client Trading Knowledge. No access person
shall use the knowledge of securities purchased or sold by any
client of Sun Capital or securities being considered for
purchase or sale by any client of Sun Capital to profit
personally, directly or indirectly, by the market effect of
such transactions.
3. Disclosure of Client Trading Knowledge. No access person
shall, directly or indirectly, communicate to any person who
is not an access person any material non-public information
relating to any client of Sun Capital or any issuer of any
security owned by any client of Sun Capital, including,
without limitation, the purchase or sale or considered
purchase or sale of a security on behalf of any client of Sun
Capital, except to the extent necessary to effectuate
securities transactions on behalf of the client of Sun
Capital.
5
<PAGE>
4. Pending Client Orders. No access person shall, directly or
indirectly, execute a personal covered securities transaction
on a day during which a client of Sun Capital has a pending
"buy" or "sell" order in that same or equivalent security
until that order is executed or withdrawn.
5. Acceptance of Gifts. No access person shall accept any gift or
other thing of more than de minimis value from any person or
entity that does business with or on behalf of client without
obtaining prior written approval of the Compliance Review
Officer. The Compliance Review Officer shall from time to time
designate the highest value to be considered de minimis.
6. Board Service; Outside Employment. No access person shall
serve on the board of directors of any publicly traded
company, absent prior written authorization and determination
by the President of Sun Capital that the board service would
be consistent with the interests of clients. All access
persons are prohibited from accepting any service, employment,
engagement, connection, association or affiliation in or with
any enterprise, business or otherwise which is likely to
interfere materially with the effective discharge of
responsibilities to Sun Capital and its clients.
7. No access person shall, directly or indirectly:
a. purchase any security sold in an initial public
offering or secondary public offering without
obtaining prior written approval of the Compliance
Review Officer.
b. purchase any security issued pursuant to a limited
offering without obtaining prior written approval of
the Compliance Review Officer. Investment personnel
who have been authorized to acquire securities in a
limited offering must disclose such investment when
they are involved in the client's subsequent
consideration of an investment in the issuer. In such
circumstances, the client's decision to purchase
securities of the issuer must be independently
reviewed by investment personnel with no personal
interest in the issuer;
Note: In considering approval of an initial public
offering or limited offering transaction, the
Compliance Review Officer will take into account,
among other considerations, whether the investment
opportunity should be reserved for Sun Capital
clients and whether the opportunity is being offered
to the individual involved by virtue of his position
at Sun Capital or with respect to the Trust.
c. sell any covered security short or purchase put
options on any specific securities in which a client
of Sun Capital has an investment interest.
d. execute covered securities transactions through
individual Investment Advisers and/or Registered
Representatives who have either Sun Capital
6
<PAGE>
or any of the Sun Life of Canada Group of Companies
as their account coverage responsibilities.
8. Disclosure of Personal Interest. Investment personnel shall
not recommend any covered securities transaction on behalf of
a client without simultaneously disclosing any beneficial
ownership interest in such securities or the issuer thereof to
Sun Capital, including without limitation:
a. his or her beneficial ownership of any securities of
such issuer or securities linked to securities of the
issuer;
b. any contemplated transaction by such person in such
securities;
c. any position with such issuer or its affiliates; and
d. any present or proposed business relationship between
such issuer or its affiliates and such person or any
party in which such person has a significant
interest.
Such interested investment personnel may not participate in
the decision for the client to purchase and sell securities of
such issuer.
9. Transactions During Blackout Period. No portfolio manager
shall, directly or indirectly, purchase or sell any covered
security or equivalent security in which he or she has, or by
reason of such purchase acquires, any beneficial ownership
within a period of seven (7) calendar days before and after
the client with respect to which he or she is a portfolio
manager has purchased or sold such security.
VI. COMPLIANCE PROCEDURES
---------------------
A. Preclearance for Personal Securities Investments
------------------------------------------------
Prior to purchasing or selling any covered security in which
he or she has or would acquire a beneficial ownership, every
access person shall be required to submit to the Compliance
Review Officer on a form designated from time to time by the
Compliance Review Officer a request for approval to effect the
transactions. The Compliance Review Officer will determine
whether the approval shall be granted or denied, and notify
the access person promptly of such determination. Any
transaction approved pursuant to the pre-clearance request
procedure must be executed by the end of the next trading day
after the day it is approved unless the Compliance Review
Officer extends the trading date for up to
7
<PAGE>
an additional three days. If the access person's trade has not
been executed by the next business day, or the day specified
in the case of an extension, the "preclearance" will lapse and
the access person may not trade without submitting another
form and having the intended trade "precleared" again.
Generally pre-clearance will not be given:
1. if Sun Capital has an unfilled order for that covered security
placed with a dealer,
2. within five trading days of completion of a Sun Capital
transaction in that covered security except that any portfolio
manager shall be precluded from engaging in any transaction
for a period of seven calendar days before and after a client
with respect to which he is a portfolio manager has purchased
or sold a covered security.
3. if that covered security is the subject of a "black out" order
issued by Sun Capital.
4. if the trade is otherwise prohibited under Section V.
B. Records of Securities Transactions
----------------------------------
Upon the written request of the Compliance Review Officer, access
persons are required to direct their brokers to supply to the
Compliance Review Officer and Sun Capital on a timely basis duplicate
copies of confirmations of all covered securities transactions and
copies of periodic statements for all covered securities accounts in
which the access person has a beneficial ownership interest.
C. Personal Reporting Requirements
-------------------------------
1. Initial holdings report. No later than 10 days after a person
-----------------------
becomes an access person, that person shall report to the
Compliance Review Officer on a form designated from time to
time by the Compliance Review Officer the following
information; provided, however, an access person shall not be
required to make a report with respect to transactions
effected for, and covered securities held in, any account over
which such person does not have any direct or indirect
influence or control;
(1) the title, number of shares and principal amount of
each covered security in which the access person had
any direct or indirect beneficial ownership when the
person became an access person;
(2) the name of any broker, dealer or bank with which the
access person maintained an account in which any
securities (not simply covered securities) were held
for the direct or indirect benefit of the access
person as of the date the person became an access
person; and
8
<PAGE>
(3) the date that the report is submitted by the access
person.
Such report must be current as of a date within 10 days before
the submission of the report.
2. Quarterly transaction and brokerage account reports. Each
---------------------------------------------------
access person shall be required to submit to the Compliance
Review Officer a quarterly report on a form designated from
time to time by the Compliance Review Officer, which report
shall set forth at least the information described in Section
VI.C.2.a. and b. as to: (i) all covered securities
transactions during each quarterly period, in which such
access person has, or by reason of such transactions acquires
or disposes of, any beneficial ownership of a covered
security; and (ii) all accounts which hold any securities
(including but nor limited to covered securities) in which the
access person had a beneficial ownership during the quarter,
except in each case, transactions effected for, and covered
securities held in, an account over which the access person
has no direct or indirect influence or control.
Every quarterly report shall be made not later than ten (10)
calendar days after the end of each calendar quarter in which
the transaction(s) or account(s) to which the report relates
was effected or opened, respectively.
a. Transaction Information. The quarterly transaction
-----------------------
report shall contain the following information:
(1) the date of each transaction, the title,
class and number of shares, interest rate
and maturity date (if applicable), and the
principal amount of each covered security
involved;
(2) the nature of each transaction (i.e.,
purchase, sale or other type of acquisition
or disposition);
(3) the price at which each transaction was
effected;
(4) the name of the broker, dealer or bank with
or through whom each transaction was
effected; and
(5) the date that the report is submitted.
b. Brokerage Account Information. The brokerage account
-----------------------------
report shall contain, with respect to any account in
which any securities (not simply covered securities)
were held for the direct or --- individual benefit of
the access person the following information:
(1) the name of the broker, dealer or bank
maintaining the account
(2) the date the account was established
(3) the date the report is submitted by the
access person.
9
<PAGE>
If the access person (i) did not effect any
transactions in any securities required to be
reported during a quarterly period, and (ii) did not
open any brokerage accounts such access persons shall
nevertheless submit to Sun Capital a quarterly report
within the time-frame specified above stating that no
reportable securities transactions were effected and
had no accounts opened.
c. Every report concerning a covered securities
transaction prohibited under the Statement of General
Principles or Prohibited Activities set forth in
Sections II or V, respectively, with respect to which
the reporting person relies upon one of the
exceptions provided in Section VII shall contain a
brief statement of the exemption relied upon and the
circumstances of the transactions.
d. One month after the end of each calendar quarter,
the Compliance Review Officer shall prepare summary
reports of all transactions by access persons.
e. The Compliance Review Officer or, in the case of
transactions in which the Compliance Review Officer
has a beneficial ownership, the Alternate Compliance
Review Officer shall compare the reported personal
covered securities transactions with completed and
contemplated portfolio transactions of the investment
companies and other clients to determine whether a
violation of this Code may have occurred. Before
making any determination that a violation has been
committed by any person, the Compliance Review
Officer shall give such person an opportunity to
supply additional explanatory material.
3. Annual holdings report. Annually by a date specified by the
----------------------
Compliance Review Officer, each access person must submit the
following information (which information must be current as of
a specified date no more than 30 days before the report is
submitted):
(1) the title, number of shares and principal
amount of each covered security in which the
access person had any direct or indirect
beneficial ownership on the specified
date;
(2) the name of any broker, dealer or bank with
which the access person maintained an
account in which any securities (not simply
covered securities) were held for the direct
or indirect benefit of the access person;
and
10
<PAGE>
(3) the date that the report is submitted by the
access person.
4. Gift reporting. Each access person is required to report
--------------
quarterly to the Compliance Review Officer, any gifts or
entertainment other than of de minimis value from any person
or entity that does business with or on behalf of a client.
The Compliance Review Officer shall maintain a Gift and
Entertainment Register for all access persons.
5. Report of violations. If the Compliance Review Officer
--------------------
determines that a violation of this Code has or may have
occurred, he shall submit a written determination, together
with the related report by the access person and any
additional explanatory material provided by the access person
to the President of Sun Capital, and the President of any
affected Investment Company (or if the matter involves such
person, the next ranking officer) who shall make an
independent determination of whether a violation has occurred.
D. Initial and Annual Certification of Compliance
----------------------------------------------
Each access person, within ten (10) days of becoming an access
person, must certify, on a form designated from time to time
by the Compliance Review Officer that he or she: (i) has read
and understands this Code and recognizes that he or she is
subject hereto; (ii) has complied with the requirements of
this Code; and (iii) has disclosed or reported all holdings
and accounts required to be disclosed or reported pursuant to
the requirements of this Code.
Each access person must also certify annually (by a date
specified by the Compliance Review Officer) on a form
designated from time to time by the Compliance Review Officer
that he or she (i) has read and understands this Code and
recognizes that he or she is subject hereto, (ii) has complied
with the requirements of this Code and (iii) has disclosed or
reported all personal securities transactions, holdings and
accounts required to be disclosed or reported pursuant to the
requirements of this Code.
E. "Joint Participation"
-------------------
Access persons should be aware that a specific provision of
the 1940 Act prohibits such persons, in the absence of an
order of the Commission, from effecting a transaction in which
an Investment Company is a "joint or a joint and several
participant" with such person. Any transaction which suggests
the possibility of a question in this area should be presented
to legal counsel for review.
VII. EXEMPT SECURITIES AND EXEMPT TRANSACTIONS
-----------------------------------------
1. Exempt Securities
11
<PAGE>
Transactions in the following types of securities are exempt
from the trading restrictions set forth in V 1-2, 4, 7, and
9-10 and the pre-clearance, but not reporting, requirements of
this Code:
a. limited partnerships, unit trusts and other pooled
funds other than open-ended registered investment
companies (shares of which are not considered
"covered securities" at all for these purposes);
b. bonds issued or guaranteed by sovereign, state or
provincial governments or supra national issuers
other than U.S. government securities (which are not
considered "securities" at all for these purposes);
c. securities of small private family businesses;
d. "index baskets" and options, futures or other
derivatives tied to recognized broad market indices.
2. Exempt Transactions and Conduct
The following types of transactions shall be exempt from the
trading restrictions set forth in V 1-2, 4, 7, and 9-10 and
the preclearance requirements, but not the reporting
requirements, of this Code with the exception of (a) below:
a. purchases or sales of covered securities for an
account over which the access person has no direct or
indirect influence or control;
b. purchases or sales of covered securities which are
non-volitional on the part of the access person;
c. purchases of covered securities which are part of an
automatic dividend reinvestment plan;
d. purchases of covered securities made by exercising
rights distributed by an issuer pro rata to all
holders of a class of its securities, to the extent
such rights were acquired by the access person from
the issuer, and sales of such rights so acquired;
e. tenders of covered securities pursuant to tender
offers which are expressly conditions on the tender
offer's acquisition of all of the securities of the
same class.
VIII. SANCTIONS
---------
Any violation of this Code shall result in the imposition of such
sanctions as Sun Capital may deem appropriate under the circumstances,
which may include, but are not limited to, termination of employment,
suspension or demotion from office, disgorgement of profits, imposition
of a fine, a letter of censure and/or restitution to the affected
client of
12
<PAGE>
an amount equal to the advantage the offending person shall have gained
by reason of such violation.
The sanction of disgorgement of any profits realized may be imposed,
among other sanctions, for any of the following violations:
a. Violation of the prohibition against access persons,
directly or indirectly, executing a personal
securities transaction on a day during which an
Investment Company in his or her complex has a
pending "buy" or "sell" order; and,
b. Violation of the prohibition against portfolio
managers, directly or indirectly, purchasing or
selling any security in which he or she has, or by
reason of such purchase acquires, any beneficial
ownership within a period of seven (7) calendar days
before and after an Investment Company has purchased
or sold such security.
IX. RECORDKEEPING REQUIREMENTS
--------------------------
Sun Capital shall maintain and preserve:
1. in an easily accessible place, a copy of this Code (and any
prior code of ethics that was in effect at any time during the
past five years) for a period of five years;
2. in an easily accessible place, a record of any violation of
this Code (and any prior code of ethics that was in effect at
any time during the past five years) and of any action taken
as a result of such violation for a period of five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report (or any information provided in lieu
thereof) submitted by an access person under this Code for a
period of five years, provided that for the first two years
such copy must be preserved in an easily accessible place;
4. in an easily accessible place, a list of all persons who are,
or within the past five years were, required to make reports
pursuant to this Code and of all persons responsible for
reviewing such reports;
5. a copy of each report required by paragraph (c)(2)(11) of Rule
17j-1 for a period of five years following the end of the
fiscal year in which such report is made, provided that for
the first two years such copy must be maintained in an easily
accessible place; and
6. a written record of any decision and the reasons supporting
such decision, to approve the acquisition by an access person
of securities offered in any initial public offering or
limited offering.
X. MISCELLANEOUS
-------------
13
<PAGE>
A. Confidentiality
---------------
All information obtained from any access person hereunder
shall be kept in strict confidence by Sun Capital, except that
reports of securities transactions hereunder will be made
available to the Commission or any other regulatory or
self-regulatory organization to the extent required by law or
regulation.
B. Notice to Access Persons, Investment Personnel and Portfolio
------------------------------------------------------------
Manager
-------
Sun Capital shall identify all persons who are considered to
be "access persons," "investment personnel" and "portfolio
managers," inform such persons of their respective duties and
provide such persons with copies of this Code. However, the
failure of the Compliance Review Officer to notify any person
of their status as either an access person or investment
personnel shall not excuse such persons of their obligations
under this Code of Ethics.
14
<PAGE>
Wellington Management Company, LLP
Wellington Trust Company, NA
Wellington Management International
Wellington International Management Company Pte Ltd.
Code of Ethics
- ----------------- ---------------------------------------------------------
Summary Wellington Management Company, llp and its affiliates
have a fiduciary duty to investment company and investment
counseling clients which requires each employee to act
solely for the benefit of clients. Also, each employee has
a duty to act in the best interest of the firm. In
addition to the various laws and regulations covering the
firm's activities, it is clearly in the firm's best
interest as a professional investment advisory
organization to avoid potential conflicts of interest or
even the appearance of such conflicts with respect to the
conduct of the firm's employees. Wellington Management's
personal trading and conduct must recognize that the
firm's clients always come first, that the firm must avoid
any actual or potential abuse of our positions of trust
and responsibility, and that the firm must never take
inappropriate advantage of its positions. While it is not
possible to anticipate all instances of potential
conflict, the standard is clear.
In light of the firm's professional and legal
responsibilities, we believe it is appropriate to restate
and periodically distribute the firm's Code of Ethics to
all employees. It is Wellington Management's aim to be as
flexible as possible in its internal procedures, while
simultaneously protecting the organization and its clients
from the damage that could arise from a situation
involving a real or apparent conflict of interest. While
it is not possible to specifically define and prescribe
rules regarding all possible cases in which conflicts
might arise, this Code of Ethics is designed to set forth
the policy regarding employee conduct in those situations
in which conflicts are most likely to develop. If an
employee has any doubt as to the propriety of any
activity, he or she should consult the President or
Regulatory Affairs Department.
The Code reflects the requirements of United States law,
Rule 17j-1 of the Investment Company Act of 1940, as
amended on October 29, 1999, as well as the
recommendations issued by an industry study group in 1994,
which were strongly supported by the SEC. The term
"Employee" includes all employees and Partners.
- ----------------- ---------------------------------------------------------
Policy on Personal Essentially, this policy requires that all personal
Securities securities transactions (including acquisitions or
Transactions dispositions other than through a purchase or sale) by all
Employees must be cleared prior to execution. The only
exceptions to this policy of prior clearance are noted
below.
- ----------------- ---------------------------------------------------------
Definition of The following transactions by Employees are considered
"Personal Securities "personal" under applicable SEC rules and therefore
Transactions" subject to this statement of policy:
1
<PAGE>
Code of Ethics
Page 2
- ----------------- ---------------------------------------------------------
Transactions for an Employee's own account, including
IRA's.
2
Transactions for an account in which an Employee has
indirect beneficial ownership, unless the Employee has no
direct or indirect influence or control over the account.
Accounts involving family (including husband, wife, minor
children or other dependent relatives), or accounts in
which an Employee has a beneficial interest (such as a
trust of which the Employee is an income or principal
beneficiary) are included within the meaning of "indirect
beneficial interest".
If an Employee has a substantial measure of influence or
control over an account, but neither the Employee nor the
Employee's family has any direct or indirect beneficial
interest (e.g., a trust for which the Employee is a
trustee but not a direct or indirect beneficiary), the
rules relating to personal securities transactions are not
considered to be directly applicable. Therefore, prior
clearance and subsequent reporting of such transactions
are not required. In all transactions involving such an
account an Employee should, however, conform to the spirit
of these rules and avoid any activity which might appear
to conflict with the investment company or counseling
clients or with respect to the Employee's position within
Wellington Management. In this regard, please note "Other
Conflicts of Interest", found later in this Code of
Ethics, which does apply to such situations.
- ----------------- ---------------------------------------------------------
Preclearance EXCEPT AS SPECIFICALLY EXEMPTED IN THIS SECTION, ALL
Required ----------------------------------------------------
EMPLOYEES MUST CLEAR PERSONAL SECURITIES TRANSACTIONS
-----------------------------------------------------
PRIOR TO EXECUTION. This includes bonds, stocks (including
-------------------
closed end funds), convertibles, preferreds, options on
securities, warrants, rights, etc. for domestic and
foreign securities, whether publicly traded or privately
placed. The only exceptions to this requirement are
automatic dividend reinvestment and stock purchase plan
acquisitions, broad-based stock index and U.S. government
securities futures and options on such futures,
transactions in open-end mutual funds, U.S. Government
securities, commercial paper, or non-volitional
transactions. Non-volitional transactions include gifts to
an Employee over which the Employee has no control of the
timing or transactions which result from corporate action
applicable to all similar security holders (such as
splits, tender offers, mergers, stock dividends, etc.).
Please note, however, that most of these transactions must
be reported even though they do not have to be precleared.
See the following section on reporting obligations.
Clearance for transactions must be obtained by contacting
the Director of Global Equity Trading or those personnel
designated by him for this purpose. Requests for clearance
and approval for transactions may be communicated orally
or via email. The Trading Department will maintain a log
of all requests for approval as coded confidential records
of the firm. Private placements (including both
<PAGE>
Code of Ethics
Page 3
- ----------------- ---------------------------------------------------------
securities and partnership interests) are subject to
special clearance by the Director of Regulatory Affairs,
Director of Enterprise Risk Management or the General
Counsel, and the clearance will remain in effect for a
reasonable period thereafter, not to exceed 90 days.
CLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS FOR
PUBLICLY TRADED SECURITIES WILL BE IN EFFECT FOR ONE
TRADING DAY ONLY. THIS "ONE TRADING DAY" POLICY IS
INTERPRETED AS FOLLOWS:
. IF CLEARANCE IS GRANTED AT A TIME WHEN THE PRINCIPAL
MARKET IN WHICH THE SECURITY TRADES IS OPEN, CLEARANCE
IS EFFECTIVE FOR THE REMAINDER OF THAT TRADING DAY UNTIL
THE OPENING OF THAT MARKET ON THE FOLLOWING DAY.
. IF CLEARANCE IS GRANTED AT A TIME WHEN THE PRINCIPAL
MARKET IN WHICH THE SECURITY TRADES IS CLOSED, CLEARANCE
IS EFFECTIVE FOR THE NEXT TRADING DAY UNTIL THE OPENING
OF THAT MARKET ON THE FOLLOWING DAY.
- ----------------- ---------------------------------------------------------
Filing of Reports Records of personal securities transactions by Employees
will be maintained. All Employees are subject to the
following reporting requirements:
1
Duplicate Brokerage All Employees must require their securities brokers to
Confirmations send duplicate confirmations of their securities
transactions to the Regulatory Affairs Department.
Brokerage firms are accustomed to providing this service.
Please contact Regulatory Affairs to obtain a form letter
to request this service. Each employee must return to the
Regulatory Affairs Department a completed form for each
brokerage account that is used for personal securities
transactions of the Employee. Employees should not send
the completed forms to their brokers directly. The form
must be completed and returned to the Regulatory Affairs
Department prior to any transactions being placed with the
broker. The Regulatory Affairs Department will process the
request in order to assure delivery of the confirms
directly to the Department and to preserve the
confidentiality of this information. When possible, the
transaction confirmation filing requirement will be
satisfied by electronic filings from securities
depositories.
2
Filing of Quarterly SEC rules require that a quarterly record of all personal
Report of all securities transactions submitted by each person subject
"Personal Securities to the Code's requirements and that this record be
Transactions" available for inspection. To comply with these rules,
every Employee must file a quarterly personal securities
transaction report within 10 calendar days after the end
of each calendar quarter. Reports are filed electronically
utilizing the firm's proprietary Personal Securities
Transaction Reporting System (PSTRS) accessible to all
Employees via the Wellington Management Intranet.
<PAGE>
Code of Ethics
Page 4
- ----------------- ---------------------------------------------------------
At the end of each calendar quarter, Employees will be
notified of the filing requirement. Employees are
responsible for submitting the quarterly report within the
deadline established in the notice.
Transactions during the quarter indicated on brokerage
confirmations or electronic filings are displayed on the
Employee's reporting screen and must be affirmed if they
are accurate. Holdings not acquired through a broker
submitting confirmations must be entered manually. All
Employees are required to submit a quarterly report, even
if there were no reportable transactions during the
quarter.
Employees must also provide information on any new
brokerage account established during the quarter including
the name of the broker, dealer or bank and the date the
account was established.
IMPORTANT NOTE: The quarterly report must include the
--------------
required information for all "personal securities
transactions" as defined above, except transactions in
open-end mutual funds, money market securities, U.S.
Government securities, and futures and options on futures
on U.S. government securities. Non-volitional transactions
and those resulting from corporate actions must also be
reported even though preclearance is not required and the
nature of the transaction must be clearly specified in the
report.
3
Certification of As part of the quarterly reporting process on PSTRS,
Compliance Employees are required to confirm their compliance with
the provisions of this Code of Ethics.
4
Filing of Personal Annually, all Employees must file a schedule indicating
Holding Report their personal securities holdings as of December 31 of
each year by the following January 30. SEC Rules require
that this report include the title, number of shares and
principal amount of each security held in an Employee's
personal account, and the name of any broker, dealer or
bank with whom the Employee maintains an account.
"Securities" for purposes of this report are those which
must be reported as indicated in the prior paragraph.
Newly hired Employees are required to file a holding
report within ten (10) days of joining the firm. Employees
may indicate securities held in a brokerage account by
attaching an account statement, but are not required to do
so, since these statements contain additional information
not required by the holding report.
5
Review of Reports All reports filed in accordance with this section will be
maintained and kept confidential by the Regulatory Affairs
Department. Reports will be reviewed by the Director of
Regulatory Affairs or personnel designated by her for this
purpose.
<PAGE>
Code of Ethics
Page 5
- ----------------- ---------------------------------------------------------
Restrictions on While all personal securities transactions must be cleared
"Personal Securities prior to execution, the following guidelines indicate
Transactions" which transactions will be prohibited, discouraged, or
subject to nearly automatic clearance. The clearance of
personal securities transactions may also depend upon
other circumstances, including the timing of the proposed
transaction relative to transactions by our investment
counseling or investment company clients; the nature of
the securities and the parties involved in the
transaction; and the percentage of securities involved in
the transaction relative to ownership by clients. The word
"clients" refers collectively to investment company
clients and counseling clients. Employees are expected to
be particularly sensitive to meeting the spirit as well as
the letter of these restrictions.
Please note that these restrictions apply in the case of
debt securities to the specific issue and in the case of
common stock, not only to the common stock, but to any
equity-related security of the same issuer including
preferred stock, options, warrants, and convertible bonds.
Also, a gift or transfer from you (an Employee) to a third
party shall be subject to these restrictions, unless the
donee or transferee represents that he or she has no
present intention of selling the donated security.
1
No Employee may engage in personal transactions involving
any securities which are:
. being bought or sold on behalf of clients until one
trading day after such buying or selling is completed or
canceled. In addition, no Portfolio Manager may engage
in a personal transaction involving any security for 7
days prior to, and 7 days following, a transaction in
the same security for a client account managed by that
Portfolio Manager without a special exemption. See
"Exemptive Procedures" below. Portfolio Managers include
all designated portfolio managers and others who have
direct authority to make investment decisions to buy or
sell securities, such as investment team members and
analysts involved in Research Equity portfolios. All
Employees who are considered Portfolio Managers will be
so notified by the Regulatory Affairs Department.
. the subject of a new or changed action recommendation
from a research analyst until 10 business days following
the issuance of such recommendation;
. the subject of a reiterated but unchanged recommendation
from a research analyst until 2 business days following
reissuance of the recommendation
<PAGE>
Code of Ethics
Page 6
- ----------------- ---------------------------------------------------------
. actively contemplated for transactions on behalf of
clients, even though no buy or sell orders have been
placed. This restriction applies from the moment that an
Employee has been informed in any fashion that any
Portfolio Manager intends to purchase or sell a specific
security. This is a particularly sensitive area and one
in which each Employee must exercise caution to avoid
actions which, to his or her knowledge, are in conflict
or in competition with the interests of clients.
2
The Code of Ethics strongly discourages short term trading
by Employees. In addition, no Employee may take a "short
term trading" profit in a security, which means the sale
of a security at a gain (or closing of a short position at
a gain) within 60 days of its purchase, without a special
exemption. See "Exemptive Procedures". The 60 day
prohibition does not apply to transactions resulting in a
loss, nor to futures or options on futures on broad-based
securities indexes or U.S. government securities.
3
No Employee engaged in equity or bond trading may engage
in personal transactions involving any equity securities
of any company whose primary business is that of a
broker/dealer.
4
Subject to preclearance, Employees may engage in short
sales, options, and margin transactions, but such
transactions are strongly discouraged, particularly due to
the 60 day short term profit-taking prohibition. Any
Employee engaging in such transactions should also
recognize the danger of being "frozen" or subject to a
forced close out because of the general restrictions which
apply to personal transactions as noted above. In specific
case of hardship an exception may be granted by the
Director of Regulatory Affairs or her designee upon
approval of the Ethics Committee with respect to an
otherwise "frozen" transaction.
5
No Employee may engage in personal transactions involving
the purchase of any security on an initial public
offering. This restriction also includes new issues
resulting from spin-offs, municipal securities and thrift
conversions, although in limited cases the purchase of
such securities in an offering may be approved by the
Director of Regulatory Affairs or her designee upon
determining that approval would not violate any policy
reflected in this Code. This restriction does not apply to
open-end mutual funds, U. S. government issues or money
market investments.
<PAGE>
Code of Ethics
Page 7
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6
EMPLOYEES MAY NOT PURCHASE SECURITIES IN PRIVATE
PLACEMENTS UNLESS APPROVAL OF THE DIRECTOR OF REGULATORY
AFFAIRS, DIRECTOR OF ENTERPRISE RISK MANAGEMENT OR THE
GENERAL COUNSEL HAS BEEN OBTAINED. This approval will be
based upon a determination that the investment opportunity
need not be reserved for clients, that the Employee is not
being offered the investment opportunity due to his or her
employment with Wellington Management and other relevant
factors on a case-by-case basis. If the Employee has
portfolio management or securities analysis
responsibilities and is granted approval to purchase a
private placement, he or she must disclose the privately
placed holding later if asked to evaluate the issuer of
the security. An independent review of the Employee's
analytical work or decision to purchase the security for a
client account will then be performed by another
investment professional with no personal interest in the
transaction.
Gifts and Other Employees should not seek, accept or offer any gifts or
Sensitive Payments favors of more than minimal value or any preferential
treatment in dealings with any client, broker/dealer,
portfolio company, financial institution or any other
organization with whom the firm transacts business.
Occasional participation in lunches, dinners, cocktail
parties, sporting activities or similar gatherings
conducted for business purposes are not prohibited.
However, for both the Employee's protection and that of
the firm it is extremely important that even the
appearance of a possible conflict of interest be avoided.
Extreme caution is to be exercised in any instance in
which business related travel and lodgings are paid for
other than by Wellington Management, and prior approval
must be obtained from the Regulatory Affairs Department.
Any question as to the propriety of such situations should
be discussed with the Regulatory Affairs Department and
any incident in which an Employee is encouraged to violate
these provisions should be reported immediately. An
explanation of all extraordinary travel, lodging and
related meals and entertainment is to be reported in a
brief memorandum to the Director of Regulatory Affairs.
Employees must not participate individually or on behalf
of the firm, a subsidiary, or any client, directly or
indirectly, in any of the following transactions:
1
Use of the firm's funds for political purposes.
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Code of Ethics
Page 8
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2
Payment or receipt of bribes, kickbacks, or payment or
receipt of any other amount with an understanding that
part or all of such amount will be refunded or delivered
to a third party in violation of any law applicable to the
transaction.
3
Payments to government officials or employees (other than
disbursements in the ordinary course of business for such
legal purposes as payment of taxes).
4
Payment of compensation or fees in a manner the purpose
of which is to assist the recipient to evade taxes,
federal or state law, or other valid charges or
restrictions applicable to such payment.
5
Use of the funds or assets of the firm or any subsidiary
for any other unlawful or improper purpose.
- ----------------- ---------------------------------------------------------
Other Conflicts of Employees should also be aware that areas other than
Interest personal securities transactions or gifts and sensitive
payments may involve conflicts of interest. The following
should be regarded as examples of situations involving
real or potential conflicts rather than a complete list of
situations to avoid.
"Inside Information" Specific reference is made to the firm's policy on the
use of "inside information" which applies to personal
securities transactions as well as to client transactions.
Use of Information Information acquired in connection with employment by the
organization may not be used in any way which might be
contrary to or in competition with the interests of
clients. Employees are reminded that certain clients have
specifically required their relationship with us to be
treated confidentially.
Disclosure of Information regarding actual or contemplated investment
Information decisions, research priorities or client interests should
not be disclosed to persons outside our organization and
in no way can be used for personal gain.
Outside All outside relationships such as directorships or
Activities trusteeships of any kind or membership in investment
organizations (e.g., an investment club) must be cleared
by the Director of Regulatory Affairs prior to the
acceptance of such a position. As a general matter,
directorships in unaffiliated public companies or
companies which may reasonably be expected to become
public companies will not be authorized because of the
potential for conflicts which may impede our freedom to
act in the best interests of clients. Service with
charitable organizations
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Code of Ethics
Page 9
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generally will be authorized, subject to considerations
related to time required during working hours and use of
proprietary information.
Exemptive Procedure The Director of Regulatory Affairs, the Director of
Enterprise Risk Management, the General Counsel or the
Ethics Committee can grant exemptions from the personal
trading restrictions in this Code upon determining that
the transaction for which an exemption is requested would
not result in a conflict of interest or violate any other
policy embodied in this Code. Factors to be considered may
include: the size and holding period of the Employee's
position in the security, the market capitalization of the
issuer, the liquidity of the security, the reason for the
Employee's requested transaction, the amount and timing of
client trading in the same or a related security, and
other relevant factors.
Any Employee wishing an exemption should submit a written
request to the Director of Regulatory Affairs setting
forth the pertinent facts and reasons why the employee
believes that the exemption should be granted. Employees
are cautioned that exemptions are intended to be
exceptions, and repetitive exemptive applications by an
Employee will not be well received.
Records of the approval of exemptions and the reasons for
granting exemptions will be maintained by the Regulatory
Affairs Department.
- ----------------- ---------------------------------------------------------
Compliance with Adherence to the Code of Ethics is considered a basic
The Code of Ethics condition of employment with our organization. The Ethics
Committee monitors compliance with the Code and reviews
violations of the Code to determine what action or
sanctions are appropriate.
Violations of the provisions regarding personal trading
will presumptively be subject to being reversed in the
case of a violative purchase, and to disgorgement of any
profit realized from the position (net of transaction
costs and capital gains taxes payable with respect to the
transaction) by payment of the profit to any client
disadvantaged by the transaction, or to a charitable
organization, as determined by the Ethics Committee,
unless the Employee establishes to the satisfaction of the
Ethics Committee that under the particular circumstances
disgorgement would be an unreasonable remedy for the
violation.
Violations of the Code of Ethics may also adversely affect
an Employee's career with Wellington Management with
respect to such matters as compensation and advancement.
Employees must recognize that a serious violation of the
Code of Ethics or related policies may result, at a
minimum, in immediate dismissal. Since many provisions
<PAGE>
Code of Ethics
Page 10
- ----------------- ---------------------------------------------------------
of the Code of Ethics also reflect provisions of the U.S.
securities laws, Employees should be aware that violations
could also lead to regulatory enforcement action resulting
in suspension or expulsion from the securities business,
fines and penalties, and imprisonment.
Again, Wellington Management would like to emphasize the
importance of obtaining prior clearance of all personal
securities transactions, avoiding prohibited transactions,
filing all required reports promptly and avoiding other
situations which might involve even an apparent conflict
of interest. Questions regarding interpretation of this
policy or questions related to specific situations should
be directed to the Regulatory Affairs Department or Ethics
Committee.
Revised: March 1, 2000
<PAGE>
OPPENHEIMER CAPITAL
CODE OF ETHICS
Effective July 1, 1999
INTRODUCTION
This Code of Ethics is based on the principle that you, as an officer or
employee of Oppenheimer Capital (OpCap), owe a fiduciary duty to the
shareholders of the registered investment companies (the Funds) and other
clients (together with the Funds, the Advisory Clients) for which OpCap serves
as an adviser or subadviser. Accordingly, you must avoid activities, interests
and relationships that might interfere or appear to interfere with making
decisions in the best interests of our Advisory Clients.
At all times, you must:
1. PLACE THE INTERESTS OF OUR ADVISORY CLIENTS FIRST. In other words, as
a fiduciary you must scrupulously avoid serving your own personal
interests ahead of the interests of our Advisory Clients. You may not
cause an Advisory Client to take action, or not to take action, for
your personal benefit rather than the benefit of the Advisory Client.
For example, you would violate this Code if you caused an Advisory
Client to purchase a Security you owned for the purpose of increasing
the price of that Security. If you are an employee who makes
decisions about investments (each a Portfolio Manager) or provides
information or advice to a Portfolio Manager or helps execute a
Portfolio Manager's decisions (together with Portfolio Managers, each
a Portfolio Employee), you would also violate this Code if you made a
personal investment in a Security that might be an appropriate
investment for an Advisory Client without first considering the
Security as an investment for the Advisory Client.
2. CONDUCT ALL OF YOUR PERSONAL SECURITIES TRANSACTIONS IN FULL COMPLIANCE
WITH THIS CODE AND THE PIMCO ADVISORS INSIDER TRADING POLICY. OpCap
encourages you and your family to develop personal investment
programs. However, you must not take any action in connection with
your personal investments that could cause even the appearance of
unfairness or impropriety. Accordingly, you must comply with the
policies and procedures set forth in this Code under the heading
Personal Securities Transactions. In addition, you must comply with
the policies and procedures set forth in the PIMCO Advisors Insider
Trading Policy, which is attached to this Code as Appendix I.
Doubtful situations should be resolved against your personal trading.
3. AVOID TAKING INAPPROPRIATE ADVANTAGE OF YOUR POSITION. The receipt of
investment opportunities, gifts or gratuities from persons seeking
business with OpCap directly or on behalf of an Advisory Client could
call into question the independence of your business judgment.
Accordingly, you must comply with the policies and procedures set
forth in this Code under the heading Fiduciary Duties. Doubtful
situations should be resolved against your personal interest.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- -------------------------------------------------------------------------------------------------
<S> <C>
PERSONAL SECURITIES TRANSACTIONS 3
Trading in General 3
Securities 3
Exempt Securities 3
Beneficial Ownership 4
Exempt Transactions 5
Preclearance Procedures 6
Initial Public Offerings 6
Private Placements 6
Short-Term Trading Profits 7
Use of Broker-Dealers 7
REPORTING 8
Reporting of Transactions 8
Annual Reports 8
FIDUCIARY DUTIES 8
Gifts 8
Service as a Director 8
COMPLIANCE 9
Certificate of Receipt 9
Certificate of Compliance 9
Remedial Actions 9
REPORTS TO DIRECTORS AND TRUSTEES 9
Reports of Significant Remedial Action 9
Annual Reports 9
APPENDICES: THE FOLLOWING APPENDICES ARE ATTACHED TO AND ARE A
PART OF THIS CODE:
I. PIMCO Advisors Insider Trading Policy and Procedures 11
II. Form for preclearance of Non-Exempt Securities transactions 18
III. Form for annual report of personal Securities holdings 19
IV. Form for acknowledgment of receipt of this Code 21
V. Form for annual certification of compliance with this Code 22
VI. Policy Regarding Special Trading Procedures For Securities
of PIMCO Advisors Holdings L.P. 23
</TABLE>
QUESTIONS
Questions regarding this Code should be addressed to a Compliance Officer. The
Compliance Officers are Frank Poli and Joseph DiBartolo.
2
<PAGE>
PERSONAL SECURITIES TRANSACTIONS
TRADING IN GENERAL
You may not engage, and you may not permit any other person or entity to engage,
in any purchase or sale of any Security (other than an Exempt Security), of
which you have, or by reason of the transaction will acquire, Beneficial
Ownership, unless (i) the transaction is an Exempt Transaction or (ii) such
transaction is approved by a Compliance Officer and precleared.
SECURITIES
The following are Securities:
Any note, stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate or subscription,
transferable share, investment contract, voting-trust certificate, certificate
of deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option or privilege on any security
(including a certificate of deposit) or on any group or index of securities
(including any interest therein or based on the value thereof), or any put,
call, straddle, option or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or
instrument commonly known as a security, or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase, any security.
The following are not Securities:
Commodities, futures and options traded on a commodities exchange, including
currency futures. However, futures and options on any group or index of
Securities are Securities.
EXEMPT SECURITIES
The following are Exempt Securities:
1. Securities issued by the Government of the United States.
2. Bankers' acceptances, bank certificates of deposit, commercial paper,
bank repurchase agreements and such other money market instruments as
may be designated from time to time by the committee appointed by
OpCap to administer this Code (the Compliance Committee).
3. Shares of registered open-end investment companies.
3
<PAGE>
BENEFICIAL OWNERSHIP
You are considered to have Beneficial Ownership of Securities if you have or
share a direct or indirect Pecuniary Interest in the Securities.
You have a Pecuniary Interest in Securities if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your immediate family sharing the same
household; however, this presumption may be rebutted by convincing
evidence that profits derived from transactions in these Securities
will not provide you with any economic benefit.
Immediate family means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-
law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or
limited partnership.
3. Your interest as a manager-member in the Securities held by a limited
liability company.
You do not have an indirect Pecuniary Interest in Securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, unless you are a controlling equityholder or you have
or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of Securities
held by a trust:
1. Your ownership of Securities as a trustee where either you or members
of your immediate family have a vested interest in the principal or
income of the trust.
2. Your ownership of a vested beneficial interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the
beneficiaries is required in order for you to revoke the trust.
4
<PAGE>
EXEMPT TRANSACTIONS
The following are Exempt Transactions:
1. Any transaction in Securities in an account over which you do not have
any direct or indirect influence or control. There is a presumption
that you can exert some measure of influence or control over accounts
held by members of your immediate family sharing the same household,
but this presumption may be rebutted by convincing evidence.
2. Purchases of Securities under dividend reinvestment plans.
3. Purchases of Securities by exercise of rights issued to the holders of
a class of Securities pro rata, to the extent they are issued with
respect to Securities of which you have Beneficial Ownership.
4. Acquisitions or dispositions of Securities as the result of a stock
dividend, stock split, reverse stock split, merger, consolidation,
spin-off or other similar corporate distribution or reorganization
applicable to all holders of a class of Securities of which you have
Beneficial Ownership.
5. Subject to the restrictions on participation in private placements set
forth below under Private Placements, acquisitions or dispositions of
Securities of a private issuer. A private issuer is a corporation,
partnership, limited liability company or other entity which has no
outstanding publicly-traded Securities, and no outstanding Securities
which are exercisable to purchase, convertible into or exchangeable
for publicly-traded Securities. However, you will have Beneficial
Ownership of Securities held by a private issuer whose equity
Securities you hold, unless you are not a controlling equityholder and
do not have or share investment control over the Securities held by
the entity.
6. Such other classes of transactions as may be exempted from time to
time by the Compliance Committee based upon a determination that the
transactions are unlikely to violate Rule 17j-1 under the Investment
Company Act of 1940, as amended. The Compliance Committee may exempt
designated classes of transactions from any of the provisions of this
Code except the provisions set forth below under Reporting.
7. Such other specific transactions as may be exempted from time to time
by a Compliance Officer. On a case-by-case basis when no abuse is
involved a Compliance Officer may exempt a specific transaction from
any of the provisions of this Code except the provisions set forth
below under Reporting.
5
<PAGE>
PRECLEARANCE PROCEDURES
If a Securities transaction requires preclearance:
1. The Securities may not be purchased or sold if at the time of preclearance
there is a pending buy or sell order on behalf of an Advisory Client in the same
Security or an equivalent Security or if you knew or should have known that an
Advisory Client would be trading in that security or an equivalent Security on
the same day.
An equivalent Security of a given Security is (i ) a Security issuable
upon exercise, conversion or exchange of the given Security, or (ii) a
Security exercisable to purchase, convertible into or exchangeable for
the given Security, or (iii) a Security otherwise representing an
interest in or based on the value of the given Security.
2. If you are a Portfolio Manager (or a person identified by the CIO as
having access to the same information), the Securities may not be
purchased or sold during the period which begins seven days before and
ends seven days after the day on which an Advisory Client trades in
the same Security or an equivalent Security; except that you may, if
you preclear the transaction, (i) trade same way to an Advisory Client
after its trading is completed, or (ii) trade opposite way to an
Advisory Client before its trading is commenced.
If you are a Portfolio Manager, and you preclear a Securities transaction and
trade same way to an Advisory Client before its trading is commenced,
the transaction is not a violation of this Code unless you knew or
should have known that the Advisory Client would be trading in that
Security or an equivalent Security within seven days after your trade.
3. The Securities may be purchased or sold only if you have asked the
Trading Department to preclear the purchase or sale, the Trading
Department has given you preclearance in writing, and the purchase or
sale is executed by the close of business on the day preclearance is
given. The form for requesting preclearance is attached to this Code
as Appendix II.
INITIAL PUBLIC OFFERINGS
If you are a Portfolio Employee, you may not acquire Beneficial Ownership of any
Securities (other than Exempt Securities) in an initial public offering.
PRIVATE PLACEMENTS
If you are a Portfolio Employee, you may not acquire Beneficial Ownership of any
Securities (other than Exempt Securities) in a private placement, unless you
have received the prior written approval of the Chief Executive Officer or the
General Counsel of PIMCO Advisors. Approval will be not be given unless a
determination is made that the investment opportunity should not be reserved for
one or more Advisory Clients, and that the opportunity to invest has not been
offered to you by virtue of your position.
If you are a Portfolio Employee, and you have acquired Beneficial Ownership of
Securities in a private placement, you must disclose your investment when you
play a part in any consideration of an investment by an Advisory Client in the
issuer of the Securities, and any decision to make such
6
<PAGE>
an investment must be independently reviewed by a Portfolio Manager who does not
have Beneficial Ownership of any Securities of the issuer.
SHORT-TERM TRADING PROFITS
If you are a Portfolio Employee, you may not profit from the purchase and sale,
or sale and purchase, within 60 calendar days, of the same Securities or
equivalent Securities (other than Exempt Securities) of which you have
Beneficial Ownership. Any such short-term trade must be unwound, or if that is
not practical, the profits must be contributed to a charitable organization.
You are considered to profit from a short-term trade if Securities of which you
have Beneficial Ownership are sold for more than the purchase price of the same
Securities or equivalent Securities, even though the Securities purchased and
the Securities sold are held of record or beneficially by different persons or
entities.
PUTS, CALLS, STRADDLES AND OPTIONS; SHORT SALES
You may not acquire Beneficial Ownership of any put, call, straddle, option or
privilege on any Securities on the Approved List or any equivalent Securities or
sell any such Securities or equivalent Securities short. You may not acquire
Beneficial Ownership of any put, call, straddle, option or privilege on any
Securities which are not shares of a large-cap issuer.
A large-cap issuer is an issuer with a total market capitalization in excess of
one billion dollars and an average daily trading volume during the preceding
calendar quarter, on the principal securities exchange (including NASDAQ) on
which its shares are traded, in excess of 100,000 shares.
A list of large-cap issuers will be prepared as of the last business day of each
calendar quarter, will be available for review with any Compliance Officer, and
will be effective for the following calendar quarter.
USE OF BROKER-DEALERS
You may not engage, and you may not permit any other person or entity to engage,
in any purchase or sale of publicly-traded Securities (other than Exempt
Securities) of which you have, or by reason of the transaction will acquire,
Beneficial Ownership, except through a registered broker-dealer. You will
engage in purchases or sales of publicly-traded Securities only through Charles
Schwab & Co. or such other registered broker-dealer as may be specified by the
Compliance Committee.
REPORTING
REPORTING OF TRANSACTIONS
You must cause each broker-dealer which maintains an account for Securities of
which you have Beneficial Ownership, to provide to the Compliance Committee, on
a timely basis, duplicate copies of confirmations of all transactions in the
account and of periodic statements for the account, and you must report to the
Compliance Committee, on a timely basis, all transactions effected without the
use of a broker in Securities (other than Exempt Securities) of which you have
Beneficial Ownership.
7
<PAGE>
ANNUAL REPORTS
You must disclose your holdings of all Securities (other than Exempt Securities)
of which you have Beneficial Ownership upon commencement of your employment by
OpCap or the effective date of this Code, whichever occurs later, and annually
thereafter. The form for this purpose is attached to this Code as Appendix III.
FIDUCIARY DUTIES
GIFTS
You may not accept any investment opportunity, gift, gratuity or other thing of
more than nominal value, from any person or entity that does business, or
desires to do business, with OpCap directly or on behalf of an Advisory Client.
You may accept gifts from a single giver so long as their aggregate annual value
does not exceed the equivalent of $100. You may attend business meals, business
related conferences, sporting events and other entertainment events at the
expense of a giver, so long as the expense is reasonable and both you and the
giver are present. You must obtain prior written approval from your supervisor
(the person to whom you report) for all air travel, conferences, and business
events that require overnight accommodations. You must provide a copy of such
written approval to the Compliance Committee.
SERVICE AS A DIRECTOR
If you are a Portfolio Employee, you may not serve on the board of directors or
other governing board of a publicly traded entity, unless you have received the
prior written approval of the Chief Executive Officer or the General Counsel of
PIMCO Advisors. Approval will not be given unless a determination is made that
your service on the board would be consistent with the interests of our Advisory
Clients. If you are permitted to serve on the board of a publicly traded
entity, you will be isolated from those Portfolio Employees who make investment
decisions with respect to the securities of that entity, through a "Chinese
Wall" or other procedures.
8
<PAGE>
COMPLIANCE
CERTIFICATE OF RECEIPT
You are required to acknowledge receipt of your copy of this Code. A form for
this purpose is attached to this Code as Appendix IV.
CERTIFICATE OF COMPLIANCE
You are required to certify upon commencement of your employment or the
effective date of this Code, whichever occurs later, and annually thereafter,
that you have read and understand this Code and recognize that you are subject
to this Code. Each annual certificate will also state that you have complied
with the requirements of this Code during the prior year, and that you have
disclosed, reported, or caused to be reported all transactions during the prior
year in Securities (other than Exempt Securities) of which you had or acquired
Beneficial Ownership. A form for this purpose is attached to this Code as
Appendix V.
REMEDIAL ACTIONS
If you violate this Code, you are subject to remedial actions, which may
include, but are not limited to, disgorgement of profits, imposition of a
substantial fine, demotion, suspension or termination.
REPORTS TO DIRECTORS AND TRUSTEES
REPORTS OF SIGNIFICANT REMEDIAL ACTION
The General Counsel of PIMCO Advisors or his delegate will on a timely basis
inform the directors or trustees of each Fund which is an Advisory Client of
each significant remedial action taken in response to a violation of this Code.
A significant remedial action means any action that has a significant financial
effect on the violator, such as disgorgement of profits, imposition of a
substantial fine, demotion, suspension or termination.
ANNUAL REPORTS
The General Counsel of PIMCO Advisors or his delegate will report annually to
the Management Board of PIMCO Advisors and the directors or trustees of each
Fund which is an Advisory Client with regard to efforts to ensure compliance by
the officers and employees of OpCap with their fiduciary obligations to our
Advisory Clients.
The annual report will, at a minimum:
1. Summarize existing procedures regarding personal Securities
transactions, and any changes in such procedures during the prior
year;
2. Summarize the violations of this Code, if any, which resulted in
significant remedial action during the prior year; and
9
<PAGE>
3. Describe any recommended changes in existing procedures or
restrictions based upon experience with this Code, evolving industry
practices, or developments in applicable laws or regulations.
10
<PAGE>
Appendix I
PIMCO ADVISORS
INSIDER TRADING POLICY AND PROCEDURES
Effective as of May 1, 1995
Section I. Policy Statement on Insider Trading
A. Policy Statement on Insider Trading
PIMCO Advisors L.P. ("PIMCO Advisors"), its affiliates, PIMCO Partners, G.P.
("PIMCO GP") and PIMCO Fund Distributors LLC ("PFD") collectively the "Company"
or "PIMCO Advisors") forbid any of their officers, directors or employees from
trading, either personally or on behalf of others (such as, mutual funds and
private accounts managed by PIMCO Advisors), on the basis of material non-public
information or communicating material non-public information to others in
violation of the law. This conduct is frequently referred to as "insider
trading". This is a group wide policy.
The term "insider trading" is not defined in the federal securities laws, but
generally is used to refer to the use of material non-public information to
trade in securities or to communications of material non-public information to
others in breach of a fiduciary duty.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material non-public
information, or
(2) trading by a non-insider, while in possession of material non-public
information, where the information was disclosed to the non-insider in
violation of an insider's duty to keep it confidential, or
(3) communicating material non-public information to others in breach of a
fiduciary duty.
This policy applies to every such officer, director and employee and extends to
activities within and outside their duties at the Company. Every officer,
director and employee must read and retain this policy statement. Any questions
regarding this policy statement and the related procedures set forth herein
should be referred to a Compliance Officer of PIMCO Advisors.
The remainder of this memorandum discusses in detail the elements of insider
trading, the penalties for such unlawful conduct and the procedures adopted by
the Company to implement its policy against insider trading.
11
<PAGE>
1. TO WHOM DOES THIS POLICY APPLY?
------------------------------
This Policy applies to all employees, officers and directors (direct or
indirect) of the Company ("Covered Persons"), as well as to any transactions in
any securities participated in by family members, trusts or corporations
controlled by such persons. In particular, this Policy applies to securities
transactions by:
the Covered Person's spouse;
the Covered Person's minor children;
any other relatives living in the Covered Person's household;
a trust in which the Covered Person has a beneficial interest, unless such
person has no direct or indirect control over the trust;
a trust as to which the Covered Person is a trustee;
a revocable trust as to which the Covered Person is a settlor;
a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
a partnership of which the Covered Person is a partner (including most
investment clubs) unless the Covered Person has no direct or indirect
control over the partnership.
2. WHAT IS MATERIAL INFORMATION?
----------------------------
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities.
Although there is no precise, generally accepted definition of materiality,
information is likely to be "material" if it relates to significant changes
affecting such matters as:
dividend or earnings expectations;
write-downs or write-offs of assets;
additions to reserves for bad debts or contingent liabilities;
expansion or curtailment of company or major division operations;
proposals or agreements involving a joint venture, merger, acquisition,
divestiture, or leveraged buy-out;
new products or services;
exploratory, discovery or research developments;
criminal indictments, civil litigation or government investigations;
disputes with major suppliers or customers or significant changes in
the relationships with such parties;
labor disputes including strikes or lockouts;
substantial changes in accounting methods;
major litigation developments;
major personnel changes;
debt service or liquidity problems;
bankruptcy or insolvency;
extraordinary management developments;
public offerings or private sales of debt or equity securities;
12
<PAGE>
calls, redemptions or purchases of a company's own stock;
issuer tender offers; or
recapitalizations.
Information provided by a company could be material because of its expected
effect on a particular class of the company's securities, all of the company's
securities, the securities of another company, or the securities of several
companies. Moreover, the resulting prohibition against the misuses of
"material" information reaches all types of securities (whether stock or other
equity interests, corporate debt, government or municipal obligations, or
commercial paper) as well as any option related to that security (such as a put,
call or index security).
Material information does not have to relate to a company's business. For
example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered
as material certain information about the contents of a forthcoming newspaper
column that was expected to affect the market price of a security. In that
case, a reporter for The Wall Street Journal was found criminally liable for
disclosing to others the dates that reports on various companies would appear in
the Journal and whether those reports would be favorable or not.
3. WHAT IS NON-PUBLIC INFORMATION?
------------------------------
In order for issues concerning insider trading to arise, information must not
only be "material", it must be "non-public". "Non-public" information is
information which has not been made available to investors generally.
Information received in circumstances indicating that it is not yet in general
circulation or where the recipient knows or should know that the information
could only have been provided by an "insider" is also deemed "non-public"
information.
At such time as material, non-public information has been effectively
distributed to the investing public, it is no longer subject to insider trading
restrictions. However, for "non-public" information to become public
information, it must be disseminated through recognized channels of distribution
designed to reach the securities marketplace.
To show that "material" information is public, you should be able to point to
some fact verifying that the information has become generally available, for
example, disclosure in a national business and financial wire service (Dow Jones
or Reuters), a national news service (AP or UPI), a national newspaper (The Wall
Street Journal, The New York Times or Financial Times), or a publicly
disseminated disclosure document (a proxy statement or prospectus). The
circulation of rumors or "talk on the street", even if accurate, widespread and
reported in the media, does not constitute the requisite public disclosure. The
information must not only be publicly disclosed, there must also be adequate
time for the market as a whole to digest the information. Although timing may
vary depending upon the circumstances, a good rule of thumb is that information
is considered non-public until the third business day after public disclosure.
Material non-public information is not made public by selective dissemination.
Material information improperly disclosed only to institutional investors or to
a fund analyst or a favored group of analysts retains its status as "non-public"
information which must not be disclosed or otherwise misused. Similarly,
partial disclosure does not constitute public dissemination. So long as any
material component of the "inside" information possessed by the Company has yet
to be publicly disclosed, the information is deemed "non-public" and may not be
misused.
13
<PAGE>
INFORMATION PROVIDED IN CONFIDENCE. Occasionally, one or more directors,
officers, or employees of the Company may become temporary "insiders" because of
a fiduciary or commercial relationship. For example, personnel at the Company
may become insiders when an external source, such as a company whose securities
are held by one or more of the accounts managed by the Company, entrusts
material, non-public information to the Company's portfolio managers or analysts
with the expectation that the information will remain confidential.
As an "insider", the Company has a fiduciary responsibility not to breach the
trust of the party that has communicated the "material non-public" information
by misusing that information. This fiduciary duty arises because the Company
has entered or has been invited to enter into a commercial relationship with the
client or prospective client and has been given access to confidential
information solely for the corporate purposes of that client or prospective
client. This obligation remains whether or not the Company ultimately
participates in the transaction.
INFORMATION DISCLOSED IN BREACH OF A DUTY. Analysts and portfolio managers at
the Company must be especially wary of "material non-public" information
disclosed in breach of a corporate insider's fiduciary duty. Even where there
is no expectation of confidentiality, a person may become an "insider" upon
receiving material, non-public information in circumstances where a person
knows, or should know, that a corporate insider is disclosing information in
breach of the fiduciary duty he or she owes the corporation and its
shareholders. Whether the disclosure is an improper "tip" that renders the
recipient a "tippee" depends on whether the corporate insider expects to benefit
personally, either directly or indirectly, from the disclosure. In the context
of an improper disclosure by a corporate insider, the requisite "personal
benefit" may not be limited to a present or future monetary gain. Rather, a
prohibited personal benefit could include a reputational benefit, an expectation
of a "quid pro quo" from the recipient or the recipient's employer by a gift of
the "inside" information.
A person may, depending on the circumstances, also become an "insider" or
"tippee" when he or she obtains apparently material, non-public information by
happenstance, including information derived from social situations, business
gatherings, overheard conversations, misplaced documents, and "tips" from
insiders or other third parties.
4. IDENTIFYING MATERIAL INFORMATION
--------------------------------
Before trading for yourself or others, including investment companies or private
accounts managed by the Company, in the securities of a company about which you
may have potential material, non-public information, ask yourself the following
questions:
i. Is this information that an investor could consider important in making his
or her investment decisions? Is this information that could substantially
affect the market price of the securities if generally disclosed?
ii. To whom has this information been provided? Has the information been
effectively communicated to the marketplace by being published in The
Financial Times, Reuters, The Wall Street Journal or other publications of
general circulation?
Given the potentially severe regulatory, civil and criminal sanctions to which
you the Company and its personnel could be subject, any director, officer and
employee uncertain as to whether the
14
<PAGE>
information he or she possesses is "material non-public" information should
immediately take the following steps:
i. Report the matter immediately to a Compliance Officer or the General
Counsel of PIMCO Advisors;
ii. Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by PIMCO
Advisors; and
iii. Do not communicate the information inside or outside the Company, other
than to a Compliance Officer or the General Counsel of PIMCO Advisors.
After the Compliance Officer or General Counsel has reviewed the issue, you will
be instructed to continue the prohibitions against trading and communication or
will be allowed to trade and communicate the information.
5. PENALTIES FOR INSIDER TRADING
-----------------------------
Penalties for trading on or communicating material non-public information are
severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even
if he or she does not personally benefit from the violation. Penalties include:
civil injunctions
treble damages
disgorgement of profits
jail sentences
fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited, and
fines for the employer or other controlling person of up to the greater of
$1,000,000 or three times the amount of the profit gained or loss
avoided.
In addition, any violation of this policy statement can be expected to result in
serious sanctions by the Company, including dismissal of the persons involved.
15
<PAGE>
Section II. Procedures to Implement the Policy Against Insider Trading
A. Procedures to Implement the Policy Against Insider Trading
The following procedures have been established to aid the officers, directors
and employees of PIMCO Advisors in avoiding insider trading, and to aid PIMCO
Advisors in preventing, detecting and imposing sanctions against insider
trading. Every officer, director and employee of PIMCO Advisors must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties.
TRADING RESTRICTIONS AND REPORTING REQUIREMENTS
- -----------------------------------------------
1. No employee, officer or director of PIMCO Advisors who possesses material
non-public information relating to PIMCO Advisors, may buy or sell any
securities of PIMCO Advisors Holdings L.P. or engage in any other action to
take advantage of, or pass on to others, such material non-public
information.
2. No employee, officer or director of PIMCO Advisors who obtains material
non-public information which relates to any other company or entity in
circumstances in which such person is deemed to be an insider or is
otherwise subject to restrictions under the federal securities laws may
buy or sell securities of that company or otherwise take advantage of, or
pass on to others, such material non-public information.
3. No employee, officer or director of PIMCO Advisors shall engage in a
securities transaction with respect to the securities of PIMCO Advisors
Holdings L.P., except in accordance with the specific procedures published
from time to time by PIMCO Advisors.
4. Each employee, officer and director of PIMCO Advisors shall submit reports
of every securities transaction involving securities of PIMCO Advisors
Holdings L.P. (if applicable) to a Compliance Officer in accordance with
the terms of PIMCO Advisors' Code of Ethics as they relate to any other
securities transaction.
5. No employee shall engage in a securities transaction with respect to any
securities of any other company, except in accordance with the specific
procedures set forth in PIMCO Advisors' Code of Ethics.
6. Employees shall submit reports concerning each securities transaction in
accordance with the terms of the Code of Ethics and verify their personal
ownership of securities in accordance with the procedures set forth in the
Code of Ethics.
7. Because even inadvertent disclosure of material non-public information to
others can lead to significant legal difficulties, officers, directors and
employees of PIMCO Advisors should not discuss any potentially material
non-public information concerning PIMCO Advisors or other companies,
including other officers, employees and directors, except as specifically
required in the performance of their duties.
B. Chinese Wall Procedures
16
<PAGE>
The Insider Trading and Securities Fraud Enforcement Act in the US requires the
establishment and strict enforcement of procedures reasonably designed to
prevent the misuse of "inside" information/1/. Accordingly, you should not
discuss material non-public information about PIMCO Advisors or other companies
with anyone, including other employees, except as required in the performance of
your regular duties. In addition, care should be taken so that such information
is secure. For example, files containing material non-public information should
be sealed; access to computer files containing material non-public information
should be restricted.
C. Resolving Issues Concerning Insider Trading
The federal securities laws, including the US laws governing insider trading,
are complex. If you have any doubts or questions as to the materiality or non-
public nature of information in your possession or as to any of the
applicability or interpretation of any of the foregoing procedures or as to the
propriety of any action, you should contact your Compliance Officer. Until
advised to the contrary by a Compliance Officer, you should presume that the
information is material and non-public and you should not trade in the
securities or disclose this information to anyone.
- --------------------
/1/ The antifraud provisions of United States securities laws reach insider
trading or tipping activity worldwide which defrauds domestic securities
markets. In addition, the Insider Trading and Securities Fraud Enforcement Act
specifically authorizes the SEC to conduct investigations at the request of
foreign governments, without regard to whether the conduct violates United
States law.
17
<PAGE>
Appendix II
EMPLOYEE TRADE PRECLEARANCE FORM
PLEASE USE A SEPARATE FORM FOR EACH SECURITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Employee (please print)
- ------------------------------------------------------------------------------------------------------------------------------------
Department Supervisor Telephone Date
- ------------------------------------------------------------------------------------------------------------------------------------
Broker Account Number Telephone Sales Representative
( )
- ------------------------------------------------------------------------------------------------------------------------------------
[_] Buy [_] Sell Ticker Symbol Price: Limit _______ Market
- ------------------------------------------------------------------------------------------------------------------------------------
Quantity Issue (Full Security Description)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Special Instructions
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Approvals
- ------------------------------------------------------------------------------------------------------------------------------------
This area reserved for Trading Department use only
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade Has Been Date Approved Approved By
[_] Approved [_] Not Approved
Legal / Compliance (if required)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
APPROVALS ARE VALID UNTIL THE CLOSE OF BUSINESS ON THE DAY APPROVAL HAS
BEEN GRANTED. ACCORDINGLY, GTC (GOOD TILL CANCELED) ORDERS ARE PROHIBITED. IF
A TRADE IS NOT EXECUTED BY THE CLOSE OF BUSINESS RESUBMITTING A NEW
PRECLEARANCE FORM IS REQUIRED. IT IS EACH EMPLOYEE'S RESPONSIBILITY TO COMPLY
WITH ALL PROVISIONS OF THE CODE. OBTAINING PRECLEARANCE SATISFIES THE
PRECLEARANCE REQUIREMENTS OF THE CODE AND DOES NOT IMPLY COMPLIANCE WITH THE
CODE'S OTHER PROVISIONS.
PRECLEARANCE PROCEDURES APPLY TO ALL EMPLOYEES AND THEIR IMMEDIATE FAMILY (AS
DEFINED BY THE CODE) INCLUDING: A) ALL ACCOUNTS IN THE NAME OF THE EMPLOYEE OR
THE EMPLOYEE'S SPOUSE OR MINOR CHILDREN; B) ALL ACCOUNTS IN WHICH ANY OF SUCH
PERSONS HAVE A BENEFICIAL INTEREST; AND C) ALL OTHER ACCOUNTS OVER WHICH ANY
SUCH PERSON EXERCISES ANY INVESTMENT DISCRETION. PLEASE SEE THE CODE FOR THE
COMPLETE DEFINITION OF IMMEDIATE FAMILY.
BY SIGNING BELOW THE EMPLOYEE CERTIFIES THE FOLLOWING: THE EMPLOYEE AGREES THAT
THE ABOVE ORDER IS IN COMPLIANCE WITH THE CODE OF ETHICS AND IS NOT BASED ON
KNOWLEDGE OF AN ACTUAL CLIENT ORDER WITHIN THE PREVIOUS SEVEN CALENDAR DAYS IN
THE SECURITY THAT IS BEING PURCHASED OR SOLD, OR KNOWLEDGE THAT THE SECURITY IS
BEING CONSIDERED FOR PURCHASE OR SALE IN ONE OR MORE SPECIFIC CLIENT ACCOUNTS,
OR KNOWLEDGE OF A CHANGE OR PENDENCY OF A CHANGE OF AN INVESTMENT MANAGEMENT
RECOMMENDATION. THE EMPLOYEE ALSO ACKNOWLEDGES THAT HE/SHE IS NOT IN POSSESSION
OF MATERIAL, INSIDE INFORMATION PERTAINING TO THE SECURITY OR ISSUER OF THE
SECURITY.
- -------------------------------------------------------------------------------
Employee Signature Date
- -------------------------------------------------------------------------------
PLEASE SEND A COPY OF THIS COMPLETED FORM TO THE
COMPLIANCE DEPARTMENT FOR ALL EXECUTED TRADES
18
<PAGE>
Appendix III
OPPENHEIMER CAPITAL
PERSONAL SECURITIES HOLDINGS
In accordance with the Code of Ethics, please provide a list of all Securities
(other than Exempt Securities) in which you or any account, in which you have a
Pecuniary Interest, has a Beneficial Interest and all Securities (other than
Exempt Securities) in non-client accounts for which you make investment
decisions. This includes not only securities held by brokers, but also
Securities held at home, in safe deposit boxes, or by an issuer.
<TABLE>
<S> <C>
(1) Name of employee: ________________________
(2) If different than #1, name of the person
in whose name the account is held: ________________________
(3) Relationship of (2) to (1): ________________________
(4) Broker(s) at which Account is Maintained: ________________________
(5) Account Number(s): ________________________
________________________
________________________
(6) Phone number(s) of Broker: ________________________
________________________
________________________
</TABLE>
19
<PAGE>
(7) For each account, attach your most recent account statement listing
Securities in that account. If you own Securities that are not listed in
an attached account statement, list them below:
<TABLE>
<CAPTION>
Name of Security Quantity Value Custodian
<S> <C> <C> <C> <C>
1. __________________ ___________ ___________ ___________________
2. __________________ ___________ ___________ ___________________
3. __________________ ___________ ___________ ___________________
4. __________________ ___________ ___________ ___________________
5. __________________ ___________ ___________ ___________________
</TABLE>
(Attached separate sheet if necessary)
I certify that this form and the attached statements (if any) constitute all of
the Securities of which I have Beneficial Ownership as defined in the Code.
______________________________
Signature
______________________________
Print Name
Dated: _________________
20
<PAGE>
Appendix IV
OPPENHEIMER CAPITAL
ACKNOWLEDGMENT CERTIFICATION
CODE OF ETHICS
and
INSIDER TRADING POLICY AND PROCEDURES
I hereby certify that I have read and understand the attached Oppenheimer
Capital Code of Ethics and Pimco Advisors Insider Trading Policy and Procedures
(together the "Code"). Pursuant to such Code, I recognize that I must disclose
or report all personal securities transactions required to be disclosed or
reported thereunder and comply in all other respects with the requirements of
the Code. I also agree to cooperate fully with any investigation or inquiry as
to whether a possible violation of the foregoing Code has occurred. I
understand that any failure to comply in all aspects with the foregoing and
these policies and procedures may lead to sanctions including dismissal.
Date: __________________________ ______________________________
Signature
______________________________
Print Name
21
<PAGE>
Appendix V
OPPENHEIMER CAPITAL
ANNUAL CERTIFICATION OF COMPLIANCE
I hereby certify that I have complied with the requirements of the Code of
Ethics and the Insider Trading Policy and Procedures, for the year ended
December 31, ____. Pursuant to the Code, I have disclosed or reported all
personal securities transactions required to be disclosed or reported
thereunder, and complied in all other respects with the requirements of the
Code. I also agree to cooperate fully with any investigation or inquiry as to
whether a possible violation of the Code has occurred.
Date: ________________________________________________________
Signature
_____________________________
Print Name
22
<PAGE>
Appendix VI
PIMCO ADVISORS
POLICY REGARDING SPECIAL TRADING PROCEDURES
FOR SECURITIES OF PIMCO ADVISORS HOLDINGS L.P.
Effective as of May 1, 1996
INTRODUCTION
- ------------
PIMCO Advisors Holdings L.P. (as defined below) has adopted an Insider Trading
Policy and Procedures applicable to all personnel which prohibits insider
trading in any securities, and prohibits all employees from improperly using or
disclosing material, non-public information, a copy of which has been supplied
to you.
For the purposes of this memorandum, the term the "Company" shall include PIMCO
Advisors Holdings L.P. ("PIMCO Holdings"), PIMCO Advisors L.P. ("PIMCO
Advisors"), PIMCO Partners, G.P. ("PIMCO GP"), PIMCO Funds Distribution LLC
("PFD") (collectively, "PIMCO Advisors") and any entity in relation to which
PIMCO Advisors or one of its subsidiaries acts as a general partner or owns 50%
or more of one the issued and outstanding stock.
PERSONS TO WHOM THIS SPECIAL TRADING POLICY APPLIES
- ---------------------------------------------------
This Policy applies to all employees of the Company, and in the case of PIMCO
Holdings, the members of the Management Board ("Covered Persons"), as well as to
any transactions in securities participated in by family members, trusts or
corporations controlled by a Covered Person. In particular, this Policy applies
to securities transactions by:
the Covered Person's spouse;
the Covered Person's minor children;
any other relatives living in the Covered Person's household;
a trust in which the Covered Person has a beneficial interest, unless such
Covered Person has no direct or indirect control over the trust;
a trust as to which the Covered Person is a trustee;
a revocable trust as to which the Covered Person is a settlor;
a corporation of which the Covered Person is an officer, director or 10% or
greater stockholder; or
a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
The family members, trust and corporations listed above are hereinafter referred
to as "Related persons."
23
<PAGE>
SECURITIES TO WHICH THIS SPECIAL TRADING POLICY APPLIES
- -------------------------------------------------------
Unless stated otherwise, the following Special Trading Procedures apply to all
transactions by Covered Persons and their Related Persons involving any class or
series of units of limited partner interest of PIMCO Holdings or other
securities of PIMCO Holdings, including options and other derivative securities
(such as a put, call or index security) in relation to such securities (the
"PIMCO Holdings' Securities").
SPECIAL TRADING PROCEDURES RELATING TO SECURITIES OF PIMCO HOLDINGS
- -------------------------------------------------------------------
1. TRADING WINDOWS
There are times when the Company may be engaged in a material non-public
development or transaction. Even if you are not aware of this development or
transaction, if you trade PIMCO Holdings' Securities before such development or
transaction is disclosed to the public, you might expose yourself and the
Company to a charge of insider trading that could be costly and difficult to
refute. In addition, such a trade by you could result in adverse publicity to
you or the company.
Therefore, the following rule shall apply: each Covered Person and all of such
person's Related Persons may only purchase or sell PIMCO Holdings' Securities
during four "trading windows" that may occur each year. The four trading windows
are generally during the months of February, May, August and November. A
memorandum detailing the specific dates of the period is sent to each employee
approximately one week prior to the opening of the window.
TRADING ON THE BASIS OF MATERIAL NON-PUBLIC INFORMATION OR COMMUNICATING
MATERIAL NON-PUBLIC INFORMATION TO OTHERS AT ANY TIME, INCLUDING IN A TRADING
WINDOW, IS A VIOLATION OF THE LAW AND A VIOLATION OF THIS POLICY.
In accordance with the procedure for waivers described below, in special
circumstances a waiver may be given to allow a trade to occur outside of a
trading window.
Employees of PIMCO Advisors should be aware that there are potential tax
consequences for such employees resulting from the ownership of PIMCO Holdings'
Securities. Each such employee contemplating purchasing PIMCO Holdings'
Securities should discuss the matter with such employee's tax advisor.
The exercise of options to purchase PIMCO Holdings' Securities for cash are not
covered by the procedures outlined above, but the securities so acquired may not
be sold except during a trading window and after all other requirements of this
policy have been satisfied.
24
<PAGE>
2. POST-TRADE REPORTING
All Covered Persons shall submit to the Compliance Officer a report of every
securities transaction in PIMCO Holdings' Securities in which they and any of
their Related Persons have participated as soon as practicable following the
transaction and in any event not later than the fifth day after the end of the
month in which the transaction occurred. The report shall include: (1) the date
of the transaction and the title and number of shares or principal amount of
each security involved; (2) the nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition); (3) the price at which the
transaction was effected; and (4) the name of the broker/dealer with or through
whom the transaction was effected. In addition, on an annual basis, each
Covered Person must confirm the amount of PIMCO Holdings' Securities which such
person and his her Related Persons beneficially own.
Each Covered Person (and not the Company) is personally responsible for insuring
that his or her transactions comply fully with any and all applicable securities
laws, including, but not limited to, the restrictions imposed under Sections
16(a) and 16(b) of the Securities Exchange Act of 1934 and Rule 144 under the
Securities Act of 1933.
3. RESOLVING ISSUES CONCERNING INSIDER TRADING
If you have any doubts or questions as to whether information is material or
non-public, or as to the applicability or interpretation of any of the foregoing
procedures, or as to the propriety of any action, you should contact the
Compliance Officer before trading or communicating the information to anyone.
Until these doubts or questions are satisfactorily resolved, you should presume
that the information is material and non-public and you should NOT trade in the
securities or communicate this information to anyone.
4. MODIFICATIONS AND WAIVERS
PIMCO Advisors (with the consent of PIMCO Holdings) reserves the right to amend
or modify this policy statement at any time. Waiver of any provision of this
policy statement in a specific instance may be authorized in writing by the
Compliance Officer and either the General Counsel of PIMCO Holdings or any
member of the Management Board of PIMCO Holdings. Any such waiver shall be
reported to the Management Board of PIMCO Holdings at the next regularly
scheduled meeting of each.
25
<PAGE>
CODE OF ETHICS
DAVIS SELECTED ADVISERS, L.P.
DAVIS SELECTED ADVISERS-NY, INC.
DAVIS DISTRIBUTORS, LLC
AND THE CLIENTS FOR WHICH THEY SERVE AS INVESTMENT ADVISER
As Amended January 29, 2000
PREAMBLE
- --------
The interests of our clients, and the interests of shareholders of the funds we
advise, are, at all times, our highest priority. In order to maintain this
priority, all personal securities transactions are conducted in a manner
consistent with this Code of Ethics (the "Code"). We are committed to
maintaining the integrity of our business by exercising vigilance in the
avoidance of all actual or potential conflicts of interest or abuses of our
position of trust and responsibility. The Code should be read in conjunction
with this Preamble.
SECTION 1: DEFINITIONS
- -----------------------
All definitions shall be interpreted pursuant to the Investment Company Act of
1940 (the "1940 Act") and its Rule 17j-1, and the Investment Advisers Act and
its Rule 204-(2).
(A) "Adviser" means Davis Selected Advisers, L.P. ("DSA"), Davis Selected
Advisers-NY, Inc. ("DSANY"), and Davis Distributors, LLC ("DDLLC"), and any
firm which controls, is controlled by, or is under common control with DSA,
and any other firm adopting this Code.
(B) "Access Person" means any director, officer, general partner, or Advisory
Person of the Adviser or a Fund. Access Person shall not include:
(1) disinterested Directors who are Access Persons solely by reason of
being a Director of a Fund; or
(2) Officers of a Fund who are Access Persons solely by reason of being an
Officer of a Fund;
if such Disinterested Directors and Officers do not, in connection with their
regular functions or duties, obtain information regarding the purchase or sale
of a security by that Fund prior to disclosure in a regular meeting of
Directors.*
(C) "Advisory Person" means
(1) any employee of the Adviser or a Fund who, in connection with his/her
regular functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a Covered Security by a Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales;
Page 1 of 10
<PAGE>
(2) any natural person in a control relationship to the Adviser or a Fund
who obtains information concerning recommendations made to such company with
regard to the purchase of a Covered Security; or
(3) any person who obtains information concerning any recommendations or
executions of Client transactions in Covered Securities and has been designated
by the Compliance Officer as an Advisory Person.*
* This Code requires the Compliance Officer to maintain a list of all Access
Persons and Advisory Persons and to provide these persons with notice of their
status.
(D) "Security held or to be Acquired by a Client" means:
(1) any Covered Security which, within the most recent 15 days:
(a) is or has been held by a Client; or
(b) is being or has been seriously considered for purchase by a
Client; and
(2) any option to purchase or sell, and any security convertible into or
exchangeable for, a Covered Security described in part (i) of this section.
A Covered Security is seriously considered for purchase by a Client when a
recommendation to purchase or sell a Covered Security has been communicated to a
portfolio manager for a Client and the portfolio manager is considering the
recommendation. A Covered Security is not being seriously considered for
purchase by a Client solely by reason of that Covered Security being subject to
normal review procedures applicable to portfolio securities of the Client, or
normal review procedures which are part of a general industrial or business
study, review, survey or research or monitoring of securities markets.
(E) "Beneficial Owner" shall be determined in the same manner as it would be in
determining whether a person is subject to the provisions of Section 16 of
the Securities Exchange Act of 1934 and the rules and regulations
thereunder. (The meaning of the term "Beneficial Owner" is summarized and
illustrated in Appendix A attached to this Code.)
(F) "Client" means any party for whom the Adviser provides investment advisory
services. Clients include Funds, whether or not the Adviser serves as the
primary investment adviser or serves as sub-adviser.
(G) "Compliance Officer" shall mean an Adviser's designated Compliance Officer
or, in the case of such designated Compliance Officer's unavailability or
inability to act, any officer of the Adviser designated to act in such
circumstances.
(H) "Control" shall have the same meaning as set forth in Section 2(a)(9) of
the 1940 Act.
(I) "Covered Security" means a security as defined in Section 2(a)(36) of the
1940 Act , except that it does not include: (1) direct obligations of the
Government of the United States, (2) banker's acceptances, bank
certificates of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreements; and (3) shares issued by
open-end funds registered under the 1940 Act.
(J) "Disinterested Director" means a director of a Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19) of
the 1940 Act.
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<PAGE>
(K) "Fund" means each investment company for whom the Adviser serves as the
primary investment adviser and manages the investment company's daily
business affairs. Currently, this includes the Davis Funds and the
Selected Funds.
(L) "Limited Offering" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2), Section 4(6), Rule
505, or Rule 506,
(M) "Purchase or Sale of a Covered Security" includes, inter alia, the writing
of an option to purchase or sell a Covered Security.
SECTION 2: UNLAWFUL ACTIONS
- ----------------------------
No Access Person, in connection with the purchase or sale of any Security Held
or to be acquired by a Client shall
(A) employ any device, scheme or artifice to defraud a Client;
(B) make any untrue statement of a material fact (or omit to state a material
fact necessary in order to make the statements made not misleading) to a
DSA employee making investment decisions or to a DSA officer investigating
securities transactions;
(C) engage in any act, practice or course of business that operates or would
operate as a fraud or deceit to a Client; or
(D) engage in any manipulative practice with respect to a Client.
SECTION 3: PROHIBITED PURCHASES AND SALES
- ------------------------------------------
(A) Pre-Clearing. No Access Person shall, directly or indirectly, purchase or
sell any Covered Security (or any security sold in a Limited Offering) in
which such person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership without the prior approval of the
Compliance Officer. The Compliance Officer shall pre-clear his personal
transactions in any Covered Security (or any security sold in a Limited
Offering) with a senior officer designated by DSA.
(B) Initial Public Offerings. No Access Person shall acquire any Securities in
------------------------
an initial public offering.
(C) Seven Day Trading Window. No Access Person shall, directly or indirectly,
purchase or sell any Covered Security in which he or she has, or by reason
of such transaction acquires, any direct or indirect beneficial ownership,
and which to his or her actual knowledge at the time of such purchase or
sale is being seriously considered for purchase or sale by or for a Client,
or is the subject of a pending buy or sell order by a Client, or is
programmed for purchase or sale by or for a Client; or was purchased or
sold by or for a Client within the seven (7) calendar day period preceding
or following the purchase or sale by such Access Person.
(D) Sanctions. Upon discovering a violation of Section 3(A) of this Code, the
Compliance Officer shall impose a fine in an amount he or she deems
appropriate. Upon discovering a violation of Sections 2, 3(B) or 3(C) of
this Code, the Adviser and the Board of Directors of any Fund affected by
such violation may impose such sanctions as each deems appropriate,
including, inter alia, monetary sanctions, a letter of censure or
suspension or termination of the
Page 3 of 10
<PAGE>
employment of the violator, civil referral to the SEC or other civil
regulatory authorities, or criminal referral.
(E) For purposes of the prohibitions in Section 3 of this Code on purchases and
sales of certain Securities, "directly or indirectly" shall be deemed to
include within such prohibitions any transaction involving any other
substantially similar Covered Securities of the same issuer, and any
derivatives of such Covered Security.
SECTION 4: EXEMPTED TRANSACTIONS
- ---------------------------------
(A) Blue Chip Exemption. The prohibitions of Section 3(A) of this Code shall
not apply to any purchase or sale, or series of related transactions,
involving less than $50,000 of the securities of a company listed either on
a national securities exchange or traded over the counter and having a
market capitalization exceeding $5 billion. A series of transactions in
the securities of a company shall be deemed to be related if occurring
within seven days, and shall be deemed not to be related if occurring more
than 14 days apart.
(B) The prohibitions of Section 3 of this Code shall not apply to:
(1) No Control. Purchases or sales effected for any account over which the
Access Person has no direct or indirect influence or control.
(2) Automatic Dividend Reinvestment Plan. Purchases that are part of an
------------------------------------
automatic dividend reinvestment plan.
(3) Pro Rata Rights. Purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights so
acquired.
(4) Systematic Investment Plan. Purchases effected through a systematic
investment plan involving the automatic investment of a predetermined amount on
predetermined dates, provided the Compliance Officer has been previously
notified by the employee that he or she (or his or her spouse) will be
participating in the plan.
(5) Gifts. Subject to the provisions of Section 7, the giving or receiving
-----
of any security as a gift.
(6) Futures Contracts, Options on Futures Contracts. Any purchase or sale
involving futures contracts on broad securities indices, such as the S&P, or
interest rate futures contracts, or options on such futures contracts.
SECTION 5: LIMITED OFFERINGS
- ----------------------------
In reviewing requests for approval of a transaction by an Access Person
involving a limited offering, the Compliance Officer shall take into account,
among other factors, whether the investment opportunity should be reserved for a
Client, and whether the opportunity is being offered to such Access Person by
virtue of his or her position with the Adviser.
An Advisory Person who has been authorized to acquire Securities in a limited
offering shall be required to disclose such investment when that Advisory Person
plays a part in any Fund's subsequent consideration of an investment in the
issuer. Any such consideration of an
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<PAGE>
investment in the issuer shall be subject to review by Advisory Persons with no
personal interest in the issuer.
SECTION 6: DISGORGEMENT BY ACCESS PERSONS OF CERTAIN SHORT-TERM TRADING PROFITS
- --------------------------------------------------------------------------------
(A) No Access Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar days.
Any profits realized by such Access Person on such short-term trades shall
be disgorged.
(B) Any profits realized by an Access Person on trades made in violation of
Section 3(C) of this Code (the Seven Day Trading Window) shall be
disgorged.
SECTION 7: GIFTS
- -----------------
In addition to those provisions of the NASD Rules of Fair Practice or similar
ethical rules relating to the receipt of gifts and other benefits, all Access
Persons are prohibited from receiving any gift, gratuity, favor award or other
item or benefit having a market value in excess of $100 per person, per year,
from or on behalf of any person or entity that does, or seeks to do, business
with or on behalf of the Adviser or its Clients. Business-related entertainment
such as meals, tickets to the theater or a sporting event which are infrequent
and of a non-lavish nature are excepted from this prohibition.
SECTION 8: SERVICE AS A DIRECTOR
- ---------------------------------
Access Persons are prohibited from serving on the boards of directors of
publicly traded companies unless the Compliance Officer determines, in writing,
that such service is not inconsistent with the interests of the Clients and
their shareholders. If the Compliance Officer has approved such service, and
such Access Person is also an Advisory Person, that Advisory Person shall be
isolated, through "Chinese Wall" procedures, from persons making investment
decisions with respect to such issuer.
SECTION 9: REPORTING
- ---------------------
(A) Initial and Annual Disclosure. Except as provided in paragraph (e), every
-----------------------------
Access Person shall:
(1) Report all personal holdings of Covered Securities within 10 days of
becoming an Access person; and
(2) Report all personal holdings of Covered Securities as of December 31st
(or other date acceptable to the Compliance Officer) within 30 days of calendar
year-end.
(B) Duplicate Confirmation Statements. Every Access Person shall instruct the
broker, dealer or bank with or through whom a Covered Security transaction
is effected in which every Access Person has, or by reason of such
transaction acquires or sells, any direct or indirect beneficial ownership
in the Covered Security, to furnish the Compliance Officer duplicate copies
of transaction confirmations and statements of account at the same time
such confirmations and statements of account are sent to the Access Person.
Page 5 of 10
<PAGE>
(C) Quarterly Reporting. Every Access Person shall report within 10 days after
the end of each calendar quarter to the Compliance Officer all Covered
Securities transactions taking place during the preceding calendar quarter
in an account of which the Access Person is a Beneficial Owner. If the
Access Person did not execute any such transactions during the preceding
calendar quarter, he shall report such fact to the Compliance Officer.
(D) Opening Brokerage Accounts. Prior to the opening of an account for the
purpose of executing transactions in Covered Securities, every Access
Person shall obtain the written consent of the Compliance Officer.
(E) Non-Discretionary Accounts. No person shall be required to make a report
with respect to any account over which such person does not have any direct
or indirect influence or control.
(F) Non-Admission Statement. Any such disclosure report may contain a
statement that the report shall not be construed as an admission by the
person making such report that he or she has any direct or indirect
beneficial ownership in the Covered Security to which the report relates.
SECTION 10: ADMINISTRATION OF THE CODE
- ---------------------------------------
(A) Appointment of a Compliance Officer. DSA shall appoint a Compliance
Officer and shall keep a record for five years of the persons serving as
Compliance Officer and their dates of service.
(B) Administration of the Code. The Compliance Officer shall administer the
Code and shall use reasonable diligence and institute procedures reasonably
necessary to review reports submitted by Access Persons and to prevent
violations of the Code.
(C) Record of Violations of the Code. The Compliance Officer shall maintain a
record of all violations of the Code, and of any action taken as a result
of the violation, which shall be maintained for five years in an easily
accessible place.
(D) List of Access and Advisory Persons. The Compliance Officer shall prepare
a list of the Access Persons and Advisory Persons, shall update the list as
necessary, and shall maintain a record (for 5 years) of former lists of
Access and Advisory Persons.
(E) Notice of Status as Access or Advisory Person. The Compliance Officer
shall notify each Access and Advisory Person of their status, provide them
with a copy of this Code, and obtain an acknowledgment from such person of
receipt thereof.
(F) Notice of Amendments to the Code. Amendments to this Code shall be
provided to each Access and Advisory Person, who shall acknowledge receipt
thereof.
(G) Exemptions to the Code. The Board of Directors of the Funds may exempt any
person from application of any Section(s) of this Code. A written
memorandum shall specify the Section(s) of this Code from which the person
is exempted and the reasons therefore.
(H) Quarterly Directors' Report. The Compliance Officer shall compile a
quarterly report to be presented to the Board of Directors of each of the
Funds. Such report shall discuss compliance with this Code, and shall
provide details with respect to any failure to comply and the actions taken
by the Adviser upon discovery of such failure.
Page 6 of 10
<PAGE>
(I) Annual Directors' Report. Not less than once a year the Compliance Officer
shall furnish to Directors of each of the Funds, and the Directors shall
consider, a written report that:
(1) Describes any issues arising under the Code since the last report to
the Directors, including, but not limited to, information about material
violations of the Code and sanctions imposed in response to the material
violations. The annual written report may incorporate by reference information
included in written quarterly reports previously presented to the Directors; and
(2) Certifies that DSA has adopted procedures reasonably necessary to
prevent Access Persons from violating the Code.
SECTION 11: ADOPTION OF CODE BY ENTITIES OTHER THAN DSA
- --------------------------------------------------------
The Compliance Officer of DSA shall ensure that all firms controlling,
controlled by, or under common control with DSA that employ persons who obtain
information concerning recommendations or executions of Covered Security
transactions of any Client have adopted the Code or have imposed similar ethical
constraints on their personnel.
SECTION 12: MATERIAL CHANGES TO THE CODE
- -----------------------------------------
(A) All material changes to the Code must be approved by a majority of the
Board of Directors (including independent directors voting separately) of
Funds at their next regular meeting (and in no event more than 6 months
after material change). DSA shall provide the Directors with a
certification that DSA has adopted procedures reasonably necessary to
prevent Access Persons from violating the Code. The Directors shall base
their approval on a determination that the Code contains provisions
reasonably necessary to prevent Access persons from violating Section 2 of
this Code.
(B) A copy of each version of the Code shall be maintained for five years in an
easily accessible place.
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<PAGE>
CODE OF ETHICS
Davis Selected Advisers, L.P.
DAVIS SELECTED ADVISERS-NY, INC.
DAVIS DISTRIBUTORS, LLC
AND THE CLIENTS FOR WHICH THEY SERVE AS INVESTMENT ADVISER
As Amended January 29, 2000
INITIAL & ANNUAL CODE OF ETHICS CERTIFICATION
- ---------------------------------------------
I acknowledge that I have received a copy and read the Code of Ethics, as
amended January 29, 2000, for Davis Selected Advisers, L.P., Davis Selected
Advisers-NY, Inc., Davis Distributors, LLC, other entities adopting this Code
and the Funds and clients for which they serve as investment adviser. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
I hereby certify that I have complied with the requirements of the Code of
Ethics of Davis Selected Advisers, L.P., Davis Selected Advisers-NY, Inc., Davis
Distributors, LLC, and the clients for which they serve as investment adviser,
as amended January 29, 2000, and that I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to such
Code of Ethics.
__________________________________ ______________________________
Print Name Signature
__________________________________
Date
RETURN TO HUMAN RESOURCES DEPARTMENT.
Page 8 of 10
<PAGE>
CODE OF ETHICS
DAVIS SELECTED ADVISERS, L.P.
DAVIS SELECTED ADVISERS-NY, INC.
DAVIS DISTRIBUTORS, LLC
AND THE CLIENTS FOR WHICH THEY SERVE AS INVESTMENT ADVISER
As Amended January 29, 2000
INITIAL & ANNUAL CODE OF ETHICS CERTIFICATION
- ---------------------------------------------
I acknowledge that I have received a copy and read the Code of Ethics, as
amended January 29, 2000, for Davis Selected Advisers, L.P., Davis Selected
Advisers-NY, Inc., Davis Distributors, LLC, other entities adopting this Code,
and the Funds and clients for which they serve as investment adviser. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
I hereby certify that I have complied with the requirements of the Code of
Ethics of Davis Selected Advisers, L.P., Davis Selected Advisers-NY, Inc., Davis
Distributors, LLC, and the clients for which they serve as investment adviser,
as amended January 29, 2000, and that I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to such
Code of Ethics.
__________________________________ ______________________________
Print Name Signature
__________________________________
Date
EMPLOYEE COPY.
Page 9 of 10
<PAGE>
CODE OF ETHICS
DAVIS SELECTED ADVISERS, L.P.
DAVIS SELECTED ADVISERS-NY, INC.
DAVIS DISTRIBUTORS, LLC
AND THE CLIENTS FOR WHICH THEY SERVE AS INVESTMENT ADVISER
As Amended January 29, 2000
BENEFICIAL OWNERSHIP
- --------------------
For purposes of the Code of Ethics, a beneficial owner of a security includes
any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or indirect
pecuniary interest in such security.
You have a pecuniary interest in a security if you have the opportunity,
directly or indirectly, to profit or share in the profit derived from a
transaction in such security. You are deemed to have a pecuniary interest in
any securities held by members of your immediate family sharing your household.
"Immediate family" means your son or daughter (including any legally adopted
child) or any descendants of either, your stepson or stepdaughter, your father
or mother or any ancestor of either, your stepfather or stepmother, and your
spouse. Also, you are deemed to have a pecuniary interest in securities held by
a partnership of which you are a general partner, and beneficial ownership of
the securities held by such partnership will be attributed to you in proportion
to the greater of your capital account or interest in the partnership at the
time of any transaction in such securities. You are also deemed to have a
pecuniary interest in the portfolio securities held by a corporation if you are
a controlling shareholder of such corporation and have or share investment
control over such portfolio securities. Additionally, certain performance-
related fees received by brokers, dealers, banks, insurance companies,
investment companies, investment advisors, trustees and others may give rise to
pecuniary interests in securities over which such persons have voting or
investment control.
Securities owned of record or held in your name are generally considered to be
beneficially owned by you if you have a pecuniary interest in such securities.
Beneficial ownership may include securities held by others for your benefit
regardless of record ownership (e.g., securities held for you or members of your
immediate family by agents, custodians, brokers, trustees, executors or other
administrators; securities owned by you but which have not been transferred into
your name on the books of a company; and securities which you have pledged) if
you have or share a pecuniary interest in such securities.
With respect to ownership of securities held in trust, beneficial ownership
includes the ownership of securities as a trustee in instances either where you
as trustee have, or where a member of your immediate family has, a pecuniary
interest in the securities held by the trust (e.g., by virtue of being a
beneficiary of the trust).
The final determination of beneficial ownership is a question to be determined
in light of the facts of a particular case. Thus, while you may include
security holdings of other members of your family, you may nonetheless disclaim
beneficial ownership of such securities. Any uncertainty as to whether you are
the beneficial owner of a security should be brought to the attention of the
Compliance Officer.
Page 10 of 10
