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As filed with the Securities and Exchange Commission on July __, 1996
File Nos. 33- ; 811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
(Check appropriate box or boxes)
SEASONS SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
1 SunAmerica Center, Century City
Los Angeles, CA 90067-6022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 858-8850
Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
Susan L. Harris, Esq. Margery K. Neale, Esq.
SunAmerica Inc. Shereff, Friedman, Hoffman & Goodman, LLP
1 SunAmerica Center, Century City 919 Third Avenue
Los Angeles, CA 90067-6022 New York, NY 10022
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Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement
The Registrant declares that an indefinite amount of common stock, par value
$.01 per share, is being registered by this Registration Statement pursuant to
Section 24(f) under the Investment Company Act of 1940, as amended, and Rule
24f-2 thereunder. In accordance with Rule 24f-2(a)(3) a filing fee of $500 is
being paid with this filing.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SEASONS SERIES TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
UNDER THE SECURITIES ACT OF 1933
N-1A ITEM NO.
PART A
Item 1. Cover Page. . . . . . . . . . . . . . . . . . . . . . . . . .Cover Page
Item 2. Synopsis. . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
Item 3. Condensed Financial Information . . . . . . . . . . . . .Not Applicable
Item 4. General Description of Registrant . . The Trust; Investment Objectives,
Policies And Restrictions;
Investment Techniques And
Risk Factors
Item 5. Management of the Fund. . .Management; Portfolio Turnover and Brokerage
Item 5A Management's Discussion of Fund Performance. . . . . . . .Not Applicable
Item 6. Capital Stock and Other Securities. . . . . . . . The Trust; Dividends,
Distributions and Federal Taxes;
Purchases and Redemptions;
Shareholder Voting Rights
Item 7. Purchase of Securities Being Offered. . . . . . . . The Trust; Price of
Shares; Purchases and Redemptions
Item 8. Redemption or Repurchase. . . . . . . . . . . Purchases and Redemptions
Item 9. Legal Proceedings . . . . . . . . . . . . . . . . . . . .Not Applicable
PART B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . .Cover Page
Item 11. Table of Contents. . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History. . . . .The Trust; General Information
Item 13. Investment Objectives and Policies . . . . . Investment Objectives and
Policies; Investment
Restrictions; Portfolio
Turnover
Item 14. Management of the Registrant . . . . . . . Trust Officers and Trustees
Item 15. Control Persons and Principal Holders of Securities. . .Trust Officers
and Trustees
Item 16. Investment Advisory and Other Services . . . . . . . . .Trust Officers
and Trustees; Investment
Advisory and Management
Agreement; Subadvisory
Agreements; General
Information
Item 17. Brokerage Allocation . . . . . . . Execution of Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . . . . . . . Price of Shares
Item 19. Purchase, Redemption and Pricing of Securities Being Offered . . Price
of Shares
Item 20. Tax Status . . . . . . . . .Dividends, Distributions and Federal Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . .Not Applicable
Item 22. Calculation of Performance Data. . . . . . . . . . . . .Not Applicable
Item 23. Financial Statements . . . . . . . . . . . . . . .Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
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SEASONS SERIES TRUST
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
Seasons Series Trust (the "Trust") is an open-end, management investment
company. The Trust consists of five separate portfolios (the "Portfolios"),
including four multi-managed portfolios (the "Multi-Managed Portfolios"). Each
of the Portfolios has its own investment objective. The Trust seeks to provide
investors with an asset allocation strategy consistent with the investment
strategy selected in the Seasons Variable Annuity Contract (the "Contract").
The following is a brief statement of the investment objective of each
Portfolio:
The MULTI-MANAGED GROWTH PORTFOLIO seeks long-term growth of capital.
The MULTI-MANAGED MODERATE GROWTH PORTFOLIO seeks long-term growth of
capital, with capital preservation as a secondary objective.
The MULTI-MANAGED INCOME/EQUITY PORTFOLIO seeks conservation of principal
while maintaining some potential for long-term growth of capital.
The MULTI-MANAGED INCOME PORTFOLIO seeks capital preservation.
The T. ROWE PRICE STOCK PORTFOLIO seeks long-term capital appreciation, and
secondarily, increasing dividend income through investments primarily in well-
established growth companies.
Each Multi-Managed Portfolio of the Trust, representing a different asset
allocation strategy, seeks to achieve its investment objective by investing to
varying degrees in a diverse portfolio of common stocks, securities with equity
characteristics, corporate and U.S. government fixed income securities, money
market instruments and cash or cash equivalents. The assets of each
Multi-Managed Portfolio are allocated among the same three investment managers,
but in differing percentages depending on the Portfolio's overall investment
strategy. Each of the three investment managers will manage its respective
portion or portions of the Multi-Managed Portfolios according to a separate
investment strategy or strategies as described below.
As a result of the market risk inherent in any investment, there is no
assurance that the investment objectives of any of the Portfolios will be
achieved. INVESTMENTS IN A PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT OR BY ANY OTHER ENTITY OR PERSON. Shares of the Trust are not
deposits or obligations of, or guaranteed or endorsed by, any bank through which
such shares may be sold, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
Shares of the Portfolios can be issued and redeemed only in connection with
investments in and payments under the Contract and may be sold to fund other
variable annuity or variable life contracts issued in the future, subject to
obtaining any required regulatory relief. The Contract involves fees and
expenses not described in this Prospectus and may also involve certain
restrictions on the allocation of purchase payments or contract values to one or
more of the Portfolios. See Contract prospectus for information regarding
Contract fees and expenses and any restrictions or limitations.
This Prospectus sets forth concisely the information a prospective investor
ought to know before investing in the Trust. Please read it carefully and retain
it for future reference. A Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The Statement of Additional Information may be obtained upon request
and without charge by writing to the Trust at the above address or by calling
1-800-445-7862.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated , 1996
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust........................................................................................... 3
Investment Objectives, Policies and Restrictions.................................................... 3
Multi-Managed Portfolios.......................................................................... 3
Stock Portfolio................................................................................... 6
Investment Techniques and Risk Factors.............................................................. 6
Management.......................................................................................... 13
Portfolio Turnover and Brokerage.................................................................... 15
Dividends, Distributions and Federal Taxes.......................................................... 16
Price of Shares..................................................................................... 17
Purchases and Redemptions........................................................................... 17
Shareholder Voting Rights........................................................................... 17
Independent Accountants and Legal Counsel........................................................... 18
Inquiries........................................................................................... 18
</TABLE>
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THE TRUST
The Trust, organized as a Massachusetts business trust on October 10, 1995, is
an open-end, management investment company. It was established to provide a
funding medium for the Contract, which is issued by Variable Annuity Account
Five (the "Account"), a separate account of Anchor National Life Insurance
Company (the "Life Company"), organized under the laws of the state of
California. All shares may be purchased or redeemed by the Account at net asset
value with no sales or redemption charge.
The Trust currently issues five separate series of shares or Portfolios, each of
which represents a separate portfolio of securities with its own investment
objective. The current Portfolios are the Multi-Managed Growth Portfolio, the
Multi-Managed Moderate Growth Portfolio, the Multi-Managed Income/Equity
Portfolio, the Multi-Managed Income Portfolio and the T. Rowe Price Stock
Portfolio (the "Stock Portfolio").
SunAmerica Asset Management Corp. ("SunAmerica" or the "Adviser"), an indirect,
wholly owned subsidiary of the Life Company, serves as investment adviser for
all the Portfolios of the Trust. (See "Management.") Janus Capital Corporation
("Janus") and Wellington Management Company ("WMC") both serve as subadvisers
for each of the Multi-Managed Portfolios. T. Rowe Price Associates, Inc. ("T.
Rowe Price") serves as subadviser for the Stock Portfolio and will be
responsible for managing the Stock Portfolio, subject to the supervision of
SunAmerica. (Janus, WMC and T. Rowe Price, are referred to herein individually
as a "Subadviser," and collectively as the "Subadvisers.") Each of Janus and WMC
is responsible for managing one particular component of each of the
Multi-Managed Portfolios, subject to the supervision of SunAmerica. In addition
to being responsible for overall supervision of each Portfolio, SunAmerica
manages one or more particular components of each of the Multi-Managed
Portfolios, all as more fully described below.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
A description of each Portfolio's investment objective and a summary of the
investment policies followed by the Portfolios are set forth below. However,
please also refer to the section captioned "Investment Techniques and Risk
Factors" for a more detailed description of the characteristics and risks
associated with the Portfolios and the types of securities in which they invest.
There can be no assurance that any Portfolio's investment objective will be met
or that the net return on an investment in a Portfolio will exceed that which
could have been obtained through other investment or savings vehicles.
Each Portfolio has certain fundamental investment restrictions, which are
described in the Statement of Additional Information. A Portfolio's fundamental
investment restrictions may not be changed without a majority vote of the
outstanding voting securities of that Portfolio. See "Shareholder Voting
Rights." Except for its fundamental investment restrictions, each Portfolio's
investment objective and policies are not fundamental and may be changed without
a vote of the shareholders.
Each Multi-Managed Portfolio is organized as a "non-diversified" Portfolio of
the Trust (as such term is defined under the Investment Company Act of 1940, as
amended (the "1940 Act")), subject, however, to certain tax diversification
requirements and to diversification guidelines of the California Department of
Insurance. See "Dividends, Distributions and Federal Taxes."
Reference is made in the following sections to ratings assigned to certain types
of securities by Standard & Poor's Corporation ("S&P") , Moody's Investors
Service, Inc. ("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff &
Phelps, Inc. ("Duff & Phelps") and Thomson BankWatch, Inc. ("BankWatch"), all of
which are recognized independent securities ratings institutions. A description
of the rating categories assigned by S&P, Moody's, Fitch, Duff & Phelps and
BankWatch is contained in the Statement of Additional Information.
MULTI-MANAGED PORTFOLIOS
The investment objective of each Multi-Managed Portfolio is as follows:
MULTI-MANAGED GROWTH PORTFOLIO -- long-term growth of capital
MULTI-MANAGED MODERATE GROWTH PORTFOLIO -- long-term growth of capital, with
capital preservation as a secondary objective
MULTI-MANAGED INCOME/EQUITY PORTFOLIO -- conservation of principal while
maintaining some potential for long-term growth of capital
MULTI-MANAGED INCOME PORTFOLIO -- capital preservation
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Each Multi-Managed Portfolio seeks to achieve its investment objective by
investing to varying degrees in a diverse portfolio of common stocks, securities
with equity characteristics, corporate and U.S. government fixed income
securities, money market instruments and cash or cash equivalents. Each of
SunAmerica, Janus and WMC (each, a "Manager") is responsible for managing one or
more particular components (each, a "Managed Component" or "component") of the
portfolio of each of the Multi-Managed Portfolios, as described below. The four
Managed Components are the SunAmerica/aggressive growth component, Janus/growth
component, SunAmerica/balanced component and WMC/fixed income component. The
Multi-Managed Growth and Moderate Growth Portfolios, in seeking long-term growth
of capital, include a relatively larger allocation to the Janus/growth and
SunAmerica/aggressive growth components than do the Multi-Managed Income/Equity
and Income Portfolios. In contrast, the Multi-Managed Income/Equity and Income
Portfolios, which focus on preservation of principal or capital, include
relatively larger allocations to the SunAmerica/balanced and WMC/fixed income
components than do the other two Multi-Managed Portfolios. Neither the
Multi-Managed Income/Equity Portfolio nor the Multi-Managed Income Portfolio
contains a SunAmerica/aggressive growth component. The target allocation among
the four Managed Components is described below.
Although each Multi-Managed Portfolio has a distinct investment objective and
will be allocated in varying percentages among the Managed Components in
furtherance of that objective, each Manager intends to manage its respective
Managed Component(s) in the same general manner regardless of the objective of
the Multi-Managed Portfolio. However, as described below under
"SunAmerica/Balanced Component," the equity/ debt weightings of the
SunAmerica/balanced component under normal managed market conditions (I.E., the
"neutral" weightings) will vary depending on the objective of the Multi-Managed
Portfolio. Each Managed Component of a Multi-Managed Portfolio will be treated
as a separate investment account by the Manager. Percentage limitations
contained in investment policies and restrictions of each Multi-Managed
Portfolio will be applied at the time of purchase and on a component by
component basis for that Portfolio. The investment policies relating to each
Managed Component are described below.
SUNAMERICA/AGGRESSIVE GROWTH COMPONENT
This component is intended to represent, based on the target allocations, 20%,
18%, 0% and 0% of the assets in the Multi-Managed Growth, Moderate Growth,
Income/ Equity and Income Portfolios, respectively. In managing this component,
SunAmerica will generally invest a significant portion of the component's total
assets in the equity securities of small, lesser known or new growth companies
or industries, such as telecommunications, media and biotechnology. Such "Small
Cap" companies will typically have market capitalizations of under $1 billion
and have achieved, or be expected to achieve, growth or earnings over various
major business cycles. SunAmerica may also invest the component's assets in the
equity securities of medium-sized companies ("Mid-Cap" companies) with market
capitalizations of $1 billion to $5 billion. The SunAmerica/aggressive growth
component may be invested in securities issued by well known and established
domestic or foreign companies, as well as in newer and less-seasoned companies.
Such securities may be listed on an exchange or traded over-the-counter. See
"Investment Techniques and Risk Factors."
The Adviser may, under normal circumstances, invest up to 35% of the
SunAmerica/aggressive growth component's total assets in debt securities that
have the potential for capital appreciation due to anticipated market
conditions. The Adviser may invest the assets of the SunAmerica/aggressive
growth component in securities rated as low as "BBB." See "Investment Techniques
and Risk Factors" and the Statement of Additional Information.
JANUS/GROWTH COMPONENT
This component is intended to represent, based on the target allocations, 40%,
28%, 18% and 8% of the assets in the Multi-Managed Growth, Moderate Growth,
Income/Equity and Income Portfolios, respectively. In managing this component,
Janus will invest primarily in common stocks (of both U.S. and foreign issuers)
selected for their growth potential. The Subadviser generally takes a "bottom
up" approach to building the portfolio. In other words, the Subadviser generally
seeks to identify individual companies with earnings growth potential that may
not be recognized by the market at large. Although themes may emerge, securities
are generally selected without regard to any defined industry sector or other
similarly defined selection procedure. Realization of income is not a
significant investment consideration. Any income realized on investments will be
incidental.
The Subadviser may invest the assets of the Janus/growth component to a lesser
degree in other types of U.S. and foreign securities, including preferred stock,
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warrants, convertible securities and corporate and government fixed income
securities, including up to 35% of the Janus/growth component's net assets in
high-yield/ high-risk securities rated below Baa by Moody's or BBB by S&P, or
unrated bonds determined by the Subadviser to be of comparable quality (I.E.,
"junk bonds"). See "Investment Techniques and Risk Factors" and the Statement of
Additional Information for a description of securities ratings. Such securities
may offer growth potential because of anticipated changes in interest rates,
credit standing, currency relationships or other factors.
SUNAMERICA/BALANCED COMPONENT
This component is intended to represent, based on the target allocations, 20%,
18%, 28% and 17% of the assets in the Multi-Managed Growth, Moderate Growth,
Income/Equity and Income Portfolios, respectively. In managing this component,
SunAmerica has the flexibility to select among different types of investments
for capital growth and income and may alter the composition of the investment
portfolio as economic and market trends change. The Adviser considers both the
opportunity for gain and the risk of loss in making investments. The Adviser
anticipates that the investment portfolio of the SunAmerica/balanced component,
over the long term, will consist of equity investments in the form of common and
preferred stocks, warrants and other rights, as well as of long-term bonds and
other debt securities such as convertible securities, short-term debt securities
and U.S. government securities. The Adviser may cause this component to invest
in both U.S. and foreign securities. See "Investment Techniques and Risk
Factors."
In selecting equity investments, the Adviser typically seeks companies of medium
to large capitalizations (generally $1 billion or more) which, based on their
future prospects or opportunities, are believed to be undervalued in the
marketplace. The Adviser intends to limit investments in companies with market
capitalizations of less than $1 billion to 20% of the SunAmerica/balanced
component's total assets. See "Investment Techniques and Risk Factors."
In selecting debt investments, the Adviser is primarily concerned with
determining the most appropriate time to buy and sell debt securities. The
Adviser seeks debt securities with longer maturities during periods of
anticipated lower interest rates and shorter-term debt securities when interest
rates are expected to rise. The Adviser generally selects long-term debt
securities from high quality bonds (rated AA or higher, or determined by the
Adviser to be of equivalent quality if unrated) that offer income and capital
gains. The Adviser may also invest in high quality, short-term debt securities
(such as commercial paper rated A-1 or Prime-1, or determined by the Adviser to
be of equivalent quality if unrated). However, the Adviser may invest up to 10%
of the value of the component's total assets (measured at the time of
investment) in securities rated as low as BBB (or determined by the Adviser to
be of equivalent quality if unrated). See "Investment Techniques and Risk
Factors." See also the Statement of Additional Information for a description of
securities ratings.
Under normal circumstances, the "neutral" equity/debt weightings for the
SunAmerica/balanced component will be 70% / 30% for the Multi-Managed Growth and
Moderate Growth Portfolios, and 50% / 50% for the Multi-Managed Income/Equity
and Income Portfolios. This means that at least 30% of the total assets of the
SunAmerica/balanced component of the Multi-Managed Growth and Moderate Growth
Portfolios, and at least 50% of the total assets of the SunAmerica/balanced
component of the Multi-Managed Income/Equity and Income Portfolios, will
normally be invested in fixed income securities; however, such investments may
exceed such percentages when the Adviser believes such an adjustment in
portfolio mix to be necessary in order to conserve principal, such as in
anticipation of a decline in the equities market.
WMC/FIXED INCOME COMPONENT
This component is intended to represent, based on the target allocations, 20%,
36%, 54% and 75% of the assets in the Multi-Managed Growth, Moderate Growth,
Income/Equity and Income Portfolios, respectively. In managing this component,
WMC will invest primarily in a portfolio of fixed income securities of varying
maturities and risk/return characteristics. The types of fixed
income securities in which the Subadviser may invest include the following:
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, U.S. and foreign corporate and other debt obligations,
mortgage-backed securities including CMOs, asset-backed securities, convertible
securities, obligations of foreign governments or their subdivisions, agencies
or instrumentalities, obligations of supranational and quasi-governmental
entities, commercial paper, certificates of deposit, money market instruments,
foreign currency exchange-related securities and loan participations. See
"Investment Techniques and Risk Factors."
The Subadviser may invest up to 20% of the WMC/fixed income component's assets
in securities rated below Baa by Moody's or BBB by S&P and no more than 10% of
the net assets of the WMC/fixed income component
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in bonds rated as low as C by Moody's or D by S&P (or, in each case, if not
rated, determined by the Subadviser to be of comparable quality) (I.E., "junk
bonds"). Any subsequent change in a rating to a security which is assigned by
any rating service, or change in the percentage of assets invested in certain
securities or other instruments resulting from market fluctuations or other
changes in the net assets, will not require the Subadviser to dispose of an
investment. In the event that ratings services assign different ratings to the
same securities, the Subadviser will determine which rating it believes best
reflects the security's quality and risk at the time which may be the higher of
the several assigned ratings. See "Investment Techniques and Risk Factors." See
also the Statement of Additional Information for a description of securities
ratings.
STOCK PORTFOLIO
The Stock Portfolio seeks to achieve its investment objective of long-term
capital appreciation and, secondarily, increasing dividend income through
investment primarily in well-established growth companies. In managing this
Portfolio, T. Rowe Price will invest, under normal circumstances, at least 65%
of the Portfolio's total assets in the common stocks of a diversified group of
growth companies. The companies in which the Stock Portfolio invests normally
(but not always) pay dividends, which are generally expected to rise in future
years as earnings increase. Most of the Portfolio's assets will be invested in
U.S. common stocks; however, a significant portion of the Portfolio may be
invested in foreign securities from time to time. See "Investment Techniques and
Risk Factors."
The theory of growth stock investing, which is followed by the Subadviser in
managing this Portfolio, is based on the premise that inflation represents a
more serious long-term threat to an investor's portfolio than stock market
fluctuations or recessions. In the opinion of the Subadviser, when a company's
earnings grow faster than both inflation and the economy in general, the market
will eventually reward its long-term earnings growth with a higher stock price.
In addition, the company should be able to raise its dividend in line with its
growth in earnings. However, investors should be aware that during periods of
adverse economic and market conditions, stock prices may fall despite favorable
earnings trends.
Growth stocks can be volatile for several reasons. Since the issuers usually
reinvest a high portion of earnings in their own businesses, growth stocks may
lack the comfortable dividend yield associated with value stocks that can
cushion total return in a bear market. Also, growth stocks normally carry a
higher price/earnings ratio than many other stocks. Consequently, if earnings
expectations are not met, investors often punish growth stocks inordinately.
However, the market frequently rewards growth stocks with price increases when
expectations are met or exceeded.
INVESTMENT TECHNIQUES AND RISK FACTORS
Unless otherwise specified, each Portfolio, including each Managed Component of
the Multi-Managed Portfolios, may invest in the following securities. As used
herein, the term "Manager" shall mean either the Adviser and/or a Subadviser
(including T. Rowe Price), as the case may be. Also, the stated percentage
limitations are applied to an investment at the time of purchase unless
indicated otherwise.
CONVERTIBLE SECURITIES, PREFERRED STOCKS AND WARRANTS -- Convertible securities
may be debt securities or preferred stock with a conversion feature.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stocks but lower than non-convertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower current income
with options and other features. Generally, preferred stock has a specified
dividend and ranks after bonds and before common stocks in its claim on income
for dividend payments and on assets should the company be liquidated. While most
preferred stocks pay a dividend, a Portfolio may purchase preferred stock where
the issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential. Warrants are options to buy a stated number of shares of common stock
at a specified price any time during the life of the warrants (generally two or
more years).
INVESTMENT IN SMALL COMPANIES -- The SunAmerica/aggressive growth component of
the Multi-Managed Growth and Moderate Growth Portfolios will, and the Stock
Portfolio and other Managed Components of the Multi-Managed Portfolios may,
invest in small companies having market capitalizations of under $1 billion. It
may be difficult to obtain reliable information and financial data on such
companies and the securities of these small companies may not be readily
marketable, making it difficult to dispose of shares when desirable. Securities
of small or emerging growth companies may be subject to more abrupt or erratic
market movements than larger, more established companies or the market
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average in general. A risk of investing in smaller, emerging companies is that
they often have limited product lines, markets or financial resources, and their
securities may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, certain smaller issuers may face difficulties in obtaining
the capital necessary to continue in operation and may go into bankruptcy, which
could result in a complete loss of an investment.
FOREIGN SECURITIES -- Although foreign securities are generally not expected to
constitute a substantial portion of any Portfolio's investments, the Stock
Portfolio may invest up to 30% of its total assets, the SunAmerica/balanced
component of each Multi-Managed Portfolio may invest up to 25% of its total
assets, the WMC/fixed income component of each Multi-Managed Portfolio may
invest up to 15% of its total assets, and the SunAmerica/aggressive growth and
Janus/growth components of each Multi-Managed Portfolio may invest without
limitation, in foreign securities.
Each Portfolio may also invest in U.S. dollar denominated securities of foreign
issuers, including American Depositary Receipts (ADRs), as well as European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other similar
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into which
they may be converted. Each Portfolio also may invest in securities denominated
in European Currency Units (ECUs). An ECU is a "basket" consisting of specified
amounts of currencies of certain of the twelve member states of the European
Community. In addition, the Portfolios may invest in securities denominated in
other currency "baskets." See the Statement of Additional Information for a
further discussion of these types of securities.
RISKS OF FOREIGN SECURITIES. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange-control regulations and
costs will be incurred in connection with conversions between various
currencies. The value of a security may fluctuate as a result of currency
exchange rates in a manner unrelated to the underlying value of the security.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies may be less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the U.S. In addition, there is generally less governmental regulation of
stock exchanges, brokers and listed companies abroad than in the U.S.
Investments in foreign securities may also be subject to other risks, different
from those affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets, confiscatory taxation
and imposition of withholding taxes on income from sources within such
countries.
EMERGING MARKETS. Investment may be made from time to time in issuers domiciled
in, or governments of, developing countries or emerging markets as well as
developed countries. Although there is no universally accepted definition, a
developing country is generally considered to be a country which is in the
initial stages of its industrialization cycle with a low per capita gross
national product. Historical experience indicates that the markets of developing
countries or emerging markets have been more volatile than the markets of
developed countries; however, such markets can provide higher rates of return to
investors. Investment in an emerging market country may involve certain risks,
including a less diverse and mature economic structure, a less stable political
system, an economy based on only a few industries or dependent on international
aid or development assistance, the vulnerability to local or global trade
conditions, extreme debt burdens, or volatile inflation rates.
FOREIGN CURRENCY TRANSACTIONS. The Portfolios have the ability to hold a
portion of their assets in foreign currencies and to enter into forward foreign
currency exchange contracts. They may also purchase and sell exchange-traded
futures contracts relating to foreign currency and purchase and sell put and
call options on currencies and futures contracts.
The Portfolios may enter into forward foreign currency exchange contracts to
reduce the risks of fluctuations in exchange rates; however, these contracts
cannot eliminate all such risks and do not eliminate fluctuations in the prices
of the Portfolio's portfolio securities.
The Portfolios may purchase and write put and call options on currencies for the
purpose of protecting against declines in the U.S. dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on currency will constitute only a partial hedge, up to
an amount of the premium received. A
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Portfolio could be required to purchase or sell currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on currency
may constitute an effective hedge against exchange rate fluctuations; however,
in the event of exchange rate movements adverse to a Portfolio's position, the
Portfolio may forfeit the entire amount of the premium plus related transaction
costs.
The Portfolios may enter into forward foreign currency exchange contracts,
currency options and currency swaps for non-hedging purposes when a Manager
anticipates that a foreign currency will appreciate or depreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities or are not included in such portfolio. The Portfolios may use
currency contracts and options to cross-hedge, which involves selling or
purchasing instruments in one currency to hedge against changes in exchange
rates for a different currency with a pattern of correlation. To limit any
leverage in connection with currency contract transactions for non-hedging
purposes, a Portfolio will segregate cash or liquid securities in an amount
sufficient to meet its payment obligations in these transactions. Initial margin
deposits made in connection with currency futures transactions or premiums paid
for currency options traded over-the-counter or on a commodities exchange may
each not exceed 5% of a Portfolio's total assets in the case of non-bona fide
hedging transactions.
The Portfolios may enter into currency swaps. Currency swaps involve the
exchange by a Portfolio with another party of their respective rights to make or
receive payments in specified currencies. Currency swaps usually involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Portfolio will maintain in a
segregated account with the its custodian cash or liquid securities equal to the
net amount, if any, of the excess of the Portfolio's obligations over its
entitlements with respect to swap transactions. To the extent that the net
amount of a swap is held in a segregated account consisting of cash or liquid
securities, the Adviser believes that swaps do not constitute senior securities
under the 1940 Act and, accordingly, will not treat them as being subject to the
Portfolios' borrowing restrictions. The use of currency swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If a
Manager is incorrect in its forecasts of market values and currency exchange
rates, the investment performance of a Portfolio would be less favorable that it
would have been if this investment technique were not used.
FIXED INCOME SECURITIES -- Fixed income securities are broadly characterized as
those that provide for periodic payments to the holder of the security at a
stated rate. Most fixed income securities, such as bonds, represent indebtedness
of the issuer and provide for repayment of principal at a stated time in the
future. Others do not provide for repayment of a principal amount, although they
may represent a priority over common stockholders in the event of the issuer's
liquidation. Many fixed income securities are subject to scheduled retirement,
or may be retired or "called" by the issuer prior to their maturity dates.
The market values of fixed income securities tend to vary inversely with the
level of interest rates -- when interest rates rise, their values will tend to
decline; when interest rates decline, their values generally will tend to rise.
Long-term instruments are generally more sensitive to these changes than
short-term instruments. The market value of fixed income securities and
therefore their yield are also affected by the perceived ability of the issuer
to make timely payments of principal and interest.
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. government
include the following: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) and (2) federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as Government National
Mortgage Association ("GNMA") certificates and Federal Housing Administration
debentures). For these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. government. They are of the highest
possible credit quality. These securities are subject to variations in market
value due to fluctuations in interest rates, but if held to maturity, are
guaranteed by the U.S. government to be paid in full.
Securities issued by U.S. government instrumentalities and certain federal
agencies are neither direct obligations of, nor are they guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another. For
example, some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; others are supported only by the credit of the issuing government
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agency or instrumentality. These agencies and instrumentalities include, but are
not limited to the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC"), Federal Land Banks, Farmers Home
Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks
and Federal Home Loan Banks.
GNMA CERTIFICATES -- GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
government. See the Statement of Additional Information.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS -- FNMA, a federally chartered and
privately owned corporation, issues pass-through securities representing an
interest in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest but this guarantee is not backed by the full
faith and credit of the U.S. government. FHLMC, a corporate instrumentality of
the United States, issues participation certificates that represent an interest
in a pool of conventional mortgage loans. FHLMC guarantees the timely payment of
interest and the ultimate collection of principal and maintains reserves to
protect holders against losses due to default, but the certificates are not
backed by the full faith and credit of the U.S. government. See the Statement of
Additional Information.
The Portfolios may also invest in stripped mortgage-backed securities ("SMBS"),
which are derivative multi-class mortgage securities, provided they are issued
or guaranteed by the U.S. government, its agencies or instrumentalities. SMBS's
are usually structured with two classes that receive different proportions of
the interest and principal distributions from a pool of mortgage assets. See the
Statement of Additional Information.
Janus will not cause the Janus/growth component of any Multi-Managed Portfolio
to invest more than 25% of its total assets in mortgage- and asset- backed
securities.
CORPORATE DEBT INSTRUMENTS -- These instruments, such as bonds, represent the
obligation of the issuer to repay a principal amount of indebtedness at a stated
time in the future and, in the usual case, to make periodic interim payments of
interest at a stated rate.
Investment Grade -- A designation applied to intermediate and long-term
corporate debt securities rated within the highest four rating categories
assigned by S&P (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or Baa), or,
if unrated, considered by the Adviser or Subadviser to be of comparable
quality. The ability of the issuer of an investment grade debt security to
pay interest and to repay principal is considered to vary from extremely
strong (for the highest ratings) through adequate (for the lowest ratings
given above), although the lower-rated investment grade securities may be
viewed as having speculative elements as well.
Lower Grade -- A designation applied to intermediate and long-term corporate
debt securities that are not investment grade; commonly referred to as "junk
bonds". These include bonds rated below BBB by S&P, or Baa by Moody's, or
which are unrated but considered by the Subadviser to be of equivalent
quality. These securities are considered speculative. See the Statement of
Additional Information for a complete description of bond ratings. The Stock
Portfolio and the SunAmerica/aggressive growth and balanced components of
the Multi-Managed Portfolios will not invest in these types of securities.
RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS -- High-yield, high-risk
bonds are subject to greater fluctuations in value than are higher rated bonds
because the values of high-yield bonds tend to reflect short-term corporate,
economic and market developments and investor perceptions of the issuer's credit
quality to a greater extent. Although under normal market conditions longer-term
securities yield more than shorter-term securities, they are subject to greater
price fluctuations. Fluctuations in the value of a Portfolio's investments will
be reflected in its net asset value per share. The high-yield bond market is
relatively new. Its initial growth paralleled a long economic expansion,
followed by an economic downturn which severely disrupted the market for
high-yield bonds and adversely affected the value of outstanding bonds and the
ability of the issuers to repay principal and interest. The economy may affect
the market for high-yield bonds in a similar fashion in the future including an
increased incidence of defaults on such bonds. From time to time, legislation
may be enacted which could have a negative effect on the market for high-yield
bonds.
High-yield bonds present the following risks:
Sensitivity to Interest Rate and Economic Changes -- High-yield, high-risk bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising
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interest rates, highly leveraged issuers may experience financial stress that
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay interest
or principal or entered into bankruptcy proceedings, a Portfolio may incur
losses or expenses in seeking recovery of amounts owed to it. In addition,
periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices (and therefore yields) of high-yield bonds
and the Portfolio's net asset value.
Payment Expectations -- High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest-rate market, a Manager would have to replace the security with a
lower-yielding security, resulting in a decreased return for investors.
Conversely, a high-yield bond's value will decrease in a rising interest rate
market, as will the value of the Portfolio's assets. If the Portfolio
experiences unexpected net redemptions, this may force it to sell high-yield
bonds without regard to their investment merits, thereby decreasing the asset
base upon which expenses can be spread and possibly reducing the Portfolio's
rate of return.
Liquidity and Valuation -- There may be little trading in the secondary market
for particular bonds, which may affect adversely a Portfolio's ability to value
accurately or dispose of such bonds. Under such circumstances, the task of
accurate valuation becomes more difficult and judgment would play a greater role
due to the relative lack of reliable and objective data. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of high-yield bonds, especially in a thin market.
The Managers attempt to reduce these risks through diversification of the
applicable component and by credit analysis of each issuer, as well as by
monitoring broad economic trends and corporate and legislative developments. If
a high-yield bond previously acquired by a component is downgraded, the
Managers, as appropriate, will evaluate the security and determine whether to
retain or dispose of it.
ASSET-BACKED SECURITIES -- These securities represent an interest in a pool of
consumer or other types of loans ("asset-backed securities"). Payments of
principal and interest on the underlying loans are passed through to the holders
of asset-backed securities over the life of the securities. See the Statement of
Additional Information. Janus will not cause the Janus/growth component of any
Multi-Managed Portfolio to invest more than 25% of its total assets in mortgage-
and asset- backed securities.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS. Fixed income
securities in which the Portfolios may invest also include zero coupon bonds,
deferred interest bonds and bonds on which the interest is payable in kind ("PIK
bonds"). Zero coupon and deferred interest bonds are debt obligations which are
issued or purchased at a significant discount from face value. PIK bonds are
debt obligations which provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments may experience greater volatility in market value due to
changes in interest rates and other factors than debt obligations which make
regular payments of interest. A Portfolio will accrue income on such investments
for tax and accounting purposes, as required, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities under disadvantageous
circumstances to satisfy the Portfolio's distribution obligations. Janus will
not cause the Janus/growth component of any Multi-Managed Portfolio to invest
more than 10% of its total assets in zero coupon bonds, deferred interest bonds
and PIK bonds.
SHORT-TERM AND TEMPORARY DEFENSIVE INVESTMENTS -- In addition to their primary
investments, each Portfolio may also invest up to 25% of its total assets in
money market instruments (a) for liquidity purposes (to meet redemptions and
expenses) or (b) to generate a return on idle cash held in a Portfolio during
periods when a Manager is unable to locate favorable investment opportunities.
In order to meet rebalancing requirements for the Contract, as described at page
__ of the Contract prospectus, each Portfolio may hold a greater percentage of
its assets in cash or cash equivalents at the end of each quarter than might
otherwise be the case. For temporary defensive purposes, each Portfolio may
invest up to 100% of its total assets in fixed income securities, including
corporate debt obligations and money market instruments rated in one of the two
highest categories by a nationally recognized statistical rating organization
(or determined by the Manager to be of equivalent quality). Money market
instruments may include, for all Portfolios, securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, repurchase agreements,
commercial paper, bankers' acceptances, time deposits and certificates of
deposit. In addition,
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Janus may invest idle cash of the Janus/growth component of each Multi-Managed
Portfolio in money market mutual funds that it manages. Such an investment may
entail additional fees for the Multi-Managed Portfolios. Debt securities
maturing within one year of date of the purchase include (1) commercial bank
obligations (time deposits, certificates of deposit, bankers' acceptances (time
drafts on a commercial bank where the bank accepts an irrevocable obligation to
pay at maturity) and documented discount notes (corporate promissory discount
notes accompanied by a commercial bank guarantee to pay at maturity)), (2)
savings association obligations (certificates of deposit issued by mutual
savings banks or savings and loan associations), (3) commercial paper
(short-term notes with terms of up to nine months issued by corporations or
governmental bodies), and (4) corporate bonds and notes (corporate obligations
that mature, or that may be redeemed, in one year or less) and adjustable-rate
mortgage securities backed by GNMA, FNMA, FHLMC and other non-agency issuers.
Although certain floating or variable rate obligations (securities whose coupon
rate changes at least annually and generally more frequently) have maturities in
excess of one year, they are also considered short-term debt securities. See the
Appendix to the Statement of Additional Information for a description of
securities ratings.
REPURCHASE AGREEMENTS -- Under these types of agreements, a Portfolio buys a
security and obtains a simultaneous commitment from the seller to repurchase the
security at a specified time and price. The seller must maintain collateral with
the Trust's custodian (or at an appropriate sub-custodian in the case of tri-or
quad-party repurchase agreements) equal to at least 102% of the repurchase
price, including accrued interest. A Portfolio will only enter into repurchase
agreements involving securities in which it could otherwise invest and with
selected banks and securities dealers whose financial condition is monitored by
the Manager, subject to the guidance of the Board of Trustees. If the seller
under the repurchase agreement defaults, the Portfolio may incur a loss if the
value of the collateral securing the repurchase agreement has declined, and may
incur disposition costs in connection with liquidating the collateral. If
bankruptcy proceedings are commenced with respect to the seller, realization of
the collateral by the Portfolio may be delayed or limited.
HEDGING AND INCOME ENHANCEMENT STRATEGIES -- Each Portfolio may write covered
calls to enhance income. For hedging purposes as a temporary defensive maneuver,
each Portfolio may use interest rate futures, and stock and bond index futures,
including futures on U.S. government securities (together, "Futures"); forward
contracts on foreign currencies; and call and put options on equity and debt
securities, Futures, stock and bond indices and foreign currencies (all of the
foregoing are referred to as "Hedging Instruments"). A call or put may be
purchased only if, after such purchase, the value of all call and put options
held by a Portfolio would not exceed 5% of such Portfolio's total assets. All
puts and calls on securities, interest rate futures or stock and bond index
futures or options on such Futures purchased or sold by a Portfolio will be
listed on a national securities or commodities exchange or on U.S.
over-the-counter markets. Each Multi-Managed Portfolio may, through its
WMC/fixed income component, invest up to 5% of its total assets allocated to the
WMC/fixed income component in yield curve options.
SPECIAL RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES. Participation in
the options or Futures markets and in currency exchange transactions involves
investment risks and transaction costs to which a Portfolio would not be subject
absent the use of these strategies. If the Manager's predictions of movements in
the direction of the securities, foreign currency and interest rate markets are
inaccurate, the adverse consequences to a Portfolio may leave the Portfolio in a
worse position than if such strategies were not used. Risks inherent in the use
of options, foreign currency and Futures contracts and options on Futures
contracts include (1) dependence on the Manager's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and Futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Portfolio to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Portfolio to sell a
portfolio security at a disadvantageous time, due to the need for the Portfolio
to maintain "cover" or to segregate securities in connection with hedging
transactions. A transaction is "covered" when the Portfolio owns the security
subject to the option on such security, or some other security acceptable for
applicable escrow requirements. See the Statement of Additional Information for
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further information concerning income enhancement and hedging strategies and the
regulation requirements relating thereto.
ILLIQUID AND RESTRICTED SECURITIES -- No more than 15% of the value of a
Portfolio's net assets may be invested in securities which are illiquid,
including repurchase agreements providing for settlement in more than seven days
after notice, interest rate swaps, currency swaps, caps, floors and collars. For
this purpose, not all securities which are restricted are deemed to be illiquid.
For example, restricted securities which the Board of Trustees, or the Manager
pursuant to guidelines established by the Board of Trustees, has determined to
be marketable, such as securities eligible for sale under Rule 144A promulgated
under the Securities Act of 1933, as amended, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, will not be deemed to be illiquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in the Portfolio to the extent that qualified institutional
buyers (as defined in Rule 144A) become for a time uninterested in purchasing
these restricted securities. In addition, a repurchase agreement which by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. Subject to the applicable limitation
on illiquid securities investments, a Portfolio may acquire securities issued by
the U.S. government, its agencies or instrumentalities in a private placement.
See "Illiquid Securities" in the Statement of Additional Information for a
further discussion of investments in such securities.
BORROWING -- As a matter of fundamental policy, each Portfolio is authorized to
borrow up to 33 1/3% of its total assets from banks for temporary or emergency
purposes. Notwithstanding the foregoing, pursuant to California Department of
Insurance borrowing guidelines, each Portfolio may only borrow up to 25% of its
net assets for temporary or emergency purposes.
In seeking to enhance investment performance, each of the Multi-Managed Growth
and Moderate Growth Portfolios, through its SunAmerica/aggressive growth
component, may borrow money for investment purposes and may pledge assets to
secure such borrowings. This is the speculative factor known as leverage. This
practice may help increase the net asset value of the assets allocated to this
Managed Component in an amount greater than would otherwise be the case when the
market values of the securities purchased through borrowing increase. In the
event the return on an investment of borrowed monies does not fully recover the
costs of such borrowing, the value of the component's assets would be reduced by
a greater amount than would otherwise be the case. The effect of leverage will
therefore tend to magnify the gains or losses to the component as a result of
investing the borrowed monies. During periods of substantial borrowings, the
value of the component's assets would be reduced due to the added expense of
interest on borrowed monies. Each of the Multi-Managed Growth and Moderate
Growth Portfolios is authorized to borrow, and to pledge assets to secure such
borrowings, up to the maximum extent permissible under the 1940 Act (I.E.,
presently 50% of net assets); provided, that such limitation will be calculated
with respect to the net assets allocated to the SunAmerica/aggressive growth
component of such Multi-Managed Portfolio. The time and extent to which the
SunAmerica/aggressive growth component may employ leverage will be determined by
the Adviser in light of changing facts and circumstances, including general
economic and market conditions, and will be subject to applicable lending
regulations of the Board of Governors of the Federal Reserve Board.
SECURITIES LENDING -- Each Portfolio may lend portfolio securities in amounts up
to 33% of its respective total assets to brokers, dealers and other financial
institutions, provided such loans are callable at any time by the Portfolio and
are at all times secured by cash or equivalent collateral. By lending its
portfolio securities, a Portfolio will receive income while retaining the
securities' potential for capital appreciation. As with any extensions of
credit, there are risks of delay in recovery and, in some cases, even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Manager to be creditworthy. The proceeds of such loans will be invested
in high-quality short-term debt securities, including repurchase agreements.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS -- these generally
involve the purchase of a security with payment and delivery at some time in the
future -- I.E., beyond normal settlement. A Portfolio does not earn interest on
such securities until settlement and bears the risk of market value fluctuations
in between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
One form of when-issued or delayed delivery security that the WMC/fixed income
component of each Multi-
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Managed Portfolio may purchase is a "to be announced" or "TBA" mortgage-backed
security. A TBA mortgage-backed security transaction arises when a
mortgage-backed security is purchased or sold with the specific pools to be
announced on a future settlement date.
SHORT SALES -- Each of the Multi-Managed Growth and Moderate Growth Portfolios,
through its SunAmerica/aggressive growth component, may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sales). To complete such a transaction, a Multi-Managed Portfolio must borrow
the security to make delivery to the buyer. The Multi-Managed Portfolio then is
obligated to replace the security borrowed by purchasing it at market price at
the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Multi-Managed Portfolio. Until the
security is replaced, the Multi-Managed Portfolio is required to pay to the
lender any dividends or interest which accrue during the period of the loan. To
borrow the security, the Multi-Managed Portfolio also may be required to pay a
premium, which would increase the cost of the security sold. The proceeds of the
short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out. Until the
Multi-Managed Portfolio replaces a borrowed security, the Multi-Managed
Portfolio will maintain daily a segregated account, containing cash or liquid
securities, at such a level that (i) the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current value
of the security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be less
than the market value of the security at the time it was sold short. A
Multi-Managed Portfolio will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale and the date
on which the Multi-Managed Portfolio replaces the borrowed security. A
Multi-Managed Portfolio will realize a gain if the security declines in price
between those dates. This result is the opposite of what one would expect from a
cash purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium,
dividends or interest the Multi-Managed Portfolio may be required to pay in
connection with a short sale.
Each Portfolio may make "short sales against the box." A short sale is against
the box to the extent that the Portfolio contemporaneously owns, or has the
right to obtain without payment, securities identical to those sold short. A
Portfolio may not enter into a short sale, including short sales against the
box, if, as a result, more than 25% of its net assets would be subject to such
short sales.
SPECIAL SITUATIONS -- A "special situation" arises when, in the opinion of the
Manager, the securities of a particular issuer will be recognized and appreciate
in value due to a specific development with respect to that issuer. Developments
creating a special situation might include, among others, a new product or
process, a technological breakthrough, a management change or other
extraordinary corporate event, or differences in market supply of and demand for
the security. Investment in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention.
FUTURE DEVELOPMENTS -- Each Portfolio may invest in securities and other
instruments which do not presently exist but may be developed in the future,
provided that each such investment is consistent with the Portfolio's investment
objectives, policies and restrictions and is otherwise legally permissible under
federal and state laws. The Prospectus will be amended or supplemented as
appropriate to discuss any such new investments.
MANAGEMENT
TRUSTEES -- The Trust's Board of Trustees is responsible for the overall
supervision of the operations of the Trust and performs various duties imposed
on trustees of investment companies by the 1940 Act. The Board has retained
others to provide certain services to the Trust.
INVESTMENT ADVISER -- The Trust, on behalf of each Portfolio, entered into an
Investment Advisory and Management Agreement (the "Management Agreement") with
SunAmerica to handle the Trust's day-to-day affairs, to provide investment
advisory services, office space, and other facilities for the management of the
affairs of the Trust, and to pay the compensation of certain officers of the
Trust who are affiliated persons of SunAmerica. The Management Agreement
authorizes SunAmerica to retain one or more Subadvisers to make the investment
decisions for the Portfolios, and to place the purchase and sale orders for
portfolio transactions. SunAmerica has hired the Subadvisers described below to
manage the Stock Portfolio and two of the Managed Components of each of the
Multi-Managed Portfolios. SunAmerica, in consultation with one or more
SunAmerica affiliates, monitors the activities of the
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Subadvisers, and from time to time will recommend the replacement of a
Subadviser on the basis of investment performance or other considerations.
SunAmerica may terminate any Subadvisory Agreement without shareholder approval.
Moreover, SunAmerica has applied for an exemptive order from the Securities and
Exchange Commission which would permit SunAmerica, subject to certain
conditions, to enter into Subadvisory Agreements relating to the Trust with
Subadvisers approved by the Board without obtaining shareholder approval. The
exemptive order would also permit SunAmerica, subject to the approval of the
Board but without shareholder approval, to employ new Subadvisers for new or
existing Portfolios, change the terms of particular Subadvisory Agreements or
continue the employment of existing Subadvisers after events that would
otherwise cause an automatic termination of a Subadvisory Agreement.
Shareholders of a Portfolio would have the right to terminate such agreements
for such Portfolio at any time by a vote of the majority of the outstanding
voting securities of such Portfolio. Shareholders would be notified of any
Subadviser changes. There can be no assurance that such exemptive order will be
granted.
SunAmerica, located at The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204, is a corporation organized in 1982 under the laws of the State
of Delaware. SunAmerica is an indirect, wholly owned subsidiary of the Life
Company, which is an indirect subsidiary of SunAmerica Inc., an investment-grade
financial services company. SunAmerica is engaged in providing investment advice
and management services to the Trust, other mutual funds and pension funds. In
addition to serving as adviser to the Trust, the Adviser and its affiliates
serve as adviser, manager and/ or administrator for Anchor Pathway Fund, Anchor
Series Trust, SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money
Market Funds, Inc. and SunAmerica Series Trust. The Adviser and its affiliates
managed, advised and/or administered assets in excess of $8 billion as of June
15, 1996 for investment companies, individuals, pension accounts, and corporate
and trust accounts.
Pursuant to the Management Agreement entered into between the Adviser and the
Trust, on behalf of each Portfolio, each Portfolio pays the Adviser a fee,
payable monthly, computed daily at the annual rates of .89% of Assets for the
Multi-Managed Growth Portfolio, .87% of Assets for the Multi-Managed Moderate
Growth Portfolio, .85% of Assets for the Multi-Managed Income/Equity Portfolio,
.83% of Assets for the Multi-Managed Income Portfolio and .85% of Assets for the
Stock Portfolio.
The Adviser has voluntarily agreed to waive fees or reimburse expenses, if
necessary, to keep annual operating expenses at or below the following
percentages of each of the following Portfolio's average net assets:
Multi-Managed Growth Portfolio %, Multi-Managed Moderate Growth Portfolio
%, Multi-Managed Income/Equity Portfolio %, Multi-Managed Income Portfolio
% and Stock Portfolio %. The Adviser also may voluntarily waive or
reimburse additional amounts to increase the investment return to a Portfolio's
investors. The Adviser may terminate all such waivers and/or reimbursements at
any time. Further, any waivers or reimbursements made by the Adviser with
respect to a Portfolio are subject to recoupment from that Portfolio within the
following two years, provided that the Portfolio is able to effect such payment
to the Adviser and remain in compliance with the foregoing expense limitations.
The term "Assets" means the average daily net assets of each Portfolio.
SUBADVISERS -- The organizations described below serve as subadvisers to the
Portfolios pursuant to Subadvisory Agreements with SunAmerica. Under the
Subadvisory Agreements, T. Rowe Price manages the investment and reinvestment of
the assets of the Stock Portfolio, and the other Subadvisers manage the
investment and reinvestment of the assets of the respective Managed Component of
each Multi-Managed Portfolio for which they are responsible. Each of the
Subadvisers is independent of SunAmerica and discharges its responsibilities
subject to the policies of the Trustees and the oversight and supervision of
SunAmerica, which pays the Subadvisers' fees. All of the fees described below
are payable by the Adviser to the respective Subadviser and do not increase
Portfolio expenses.
Janus is a Colorado corporation with principal offices at 100 Fillmore Street,
Suite 300, Denver, Colorado 80296-4923. Janus serves as investment adviser to
all of the Janus funds, as well as adviser or subadviser to other mutual funds
and individual, corporate, charitable and retirement accounts, and, as of June
30, 1996, has assets under management of approximately $39 billion. Kansas City
Southern Industries, Inc. ("KCSI") owns approximately 83% of the outstanding
voting stock of Janus. KCSI is a publicly traded holding company whose primary
subsidiaries are engaged in transportation and financial services. Thomas H.
Bailey, President and Chairman of the Board of Janus, owns approximately 12% of
its voting stock and, by Agreement with KCSI, selects a majority of Janus'
Board.
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The Adviser pays Janus a monthly fee based on the aggregate Assets of the
Janus/growth components of all of the Multi-Managed Portfolios, at the following
annual rates: .60% on the first $200 million of Assets and .55% of Assets in
excess of $200 million.
T. Rowe Price is a Maryland corporation with principal offices at 100 East Pratt
Street, Baltimore, Maryland 21202. Founded in 1937 by the late Thomas Rowe
Price, Jr., T. Rowe Price and its affiliates managed over $75 billion for over
three and a half million individual and institutional investor accounts as of
December 31, 1995. T. Rowe Price is a publicly traded company.
The Adviser pays T. Rowe Price a monthly fee based on the Assets of the Stock
Portfolio at the following annual rates: .50% on the first $40 million of Assets
and .40% of Assets in excess of $40 million.
WMC is a Massachusetts partnership of which the following persons are managing
partners: Robert W. Doran, Duncan M. McFarland, and John R. Ryan. The principal
offices of WMC are located at 75 State Street, Boston, Massachusetts 02109. WMC
is a professional investment counseling firm which provides investment services
to investment companies, employee benefit plans, endowments, foundations, and
other institutions and individuals. As of June 30, 1996, WMC had discretionary
management authority with respect to approximately $120 billion of assets.
The Adviser pays WMC a monthly fee based on the aggregate Assets of the
WMC/fixed income components of all of the Multi-Managed Portfolios allocated to
the WMC/fixed income component, at the following annual rates: .225% of the
first $100 million of such aggregate Assets, .125% of the next $100 million of
such aggregate Assets and .100% of such aggregate Assets over $200 million.
PORTFOLIO MANAGEMENT
Audrey L. Snell serves as the portfolio manager for the SunAmerica/aggressive
growth component of the Multi-Managed Growth and Moderate Growth Portfolios. Ms.
Snell is a Senior Vice President of SunAmerica and has been a portfolio manager
with the firm since 1991.
Warren B. Lammert serves as the portfolio manager for the Janus/growth component
of each Multi-Managed Portfolio. Mr. Lammert first joined Janus in 1987 and has
been a portfolio manager with the firm since 1993. He served as a Securities
Analyst at Janus from January 1987 to May 1988, and rejoined Janus as a Senior
Analyst in January 1990. He is a Chartered Financial Analyst.
Stanton J. Feeley serves as the portfolio manager of the SunAmerica/balanced
component of each Multi-Managed Portfolio. Mr. Feeley has served as Executive
Vice President and Chief Investment Officer of SunAmerica since February 1992.
Prior to joining SunAmerica, Mr. Feeley was a Senior Portfolio Manager for
Delaware Management Company, Inc.
Thomas L. Pappas serves as the portfolio manager of the WMC/fixed income
component of each Portfolio. Mr. Pappas is a Senior Vice President of WMC and
joined the company in 1987.
The Stock Portfolio is managed by an Investment Advisory Committee composed of
the following members: [to be filed by amendment]
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT -- State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, is the Trust's custodian, transfer agent and dividend paying agent.
EXPENSES OF THE TRUST -- In addition to the investment advisory fee, the Trust
incurs expenses, including legal, auditing and accounting expenses, Trustees'
fees and expenses, insurance premiums, brokers' commissions, taxes and
governmental fees, expenses of issue or redemption of shares, expenses of
registering or qualifying shares for sale, reports and notices to shareholders,
and fees and disbursements of custodians, transfer agents, registrars,
shareholder servicing agents and dividend disbursing agents, and certain
expenses with respect to membership fees of industry associations.
PORTFOLIO TURNOVER AND BROKERAGE
All Portfolios effect portfolio transactions without regard to the length of
time particular investments have been held. Under certain market conditions, the
investment policies of the Portfolios may result in high portfolio turnover. The
quarterly rebalancing of the Portfolios as described at page of the Contract
prospectus may also result in relatively higher portfolio turnover. Because each
Managed Component of each Multi-Managed Portfolio will be managed independently
of each other, it is possible that the same security may be purchased and sold
on the same day by two separate Managed Components of the same Multi-Managed
Portfolio, resulting in higher brokerage commissions for the Portfolio.
Notwithstanding the foregoing, however, the portfolio turnover rates for the
Portfolios are not expected to exceed %. High portfolio turnover involves
correspondingly greater brokerage commissions, to the extent such commissions
are payable, and
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other transaction costs that are borne directly by the Portfolio involved.
Higher turnover rates reflect an increased rate of realization of gains and
losses by the Portfolio, which would normally affect the taxable income of the
Portfolio's shareholders. Where the shareholder is an insurance company separate
account funding variable annuity contracts, qualified as such under the Internal
Revenue Code of 1986, as amended ("Code"), however, the contract owners are not
currently charged with such income or losses except to the extent provided under
the Code (normally when distributions under the contracts are made). Corporate
bonds and U.S. government securities are generally traded on a net basis and
usually neither brokerage commissions nor transfer taxes are involved.
Broker-dealers involved in the execution of portfolio transactions on behalf of
the Trust are selected on the basis of their professional capability and the
value and quality of their services. In selecting such broker-dealers, the
Adviser and Subadvisers will consider various relevant factors, including, but
not limited to, the size and type of the transaction; the nature and character
of the markets in which the security can be purchased or sold; the execution
efficiency, settlement capability, and financial condition of the broker-dealer;
the broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions. The Adviser or a Subadviser also may select
broker-dealers which provide it with research services and may cause a Portfolio
to pay such broker-dealers commissions which exceed those which other broker-
dealers may have charged, if in the Adviser's or Subadviser's view the
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by the broker-dealer. Further, the Adviser or a
Subadviser may effect portfolio transactions through broker-dealer affiliates of
the Trust, Adviser or Subadvisers.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
Under the Code each Portfolio is treated as a separate regulated investment
company provided qualification requirements are met. To qualify as a regulated
investment company, a Portfolio must, among other things, (a) derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stocks, 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 stocks, securities or currencies; (b) derive less than 30% of
its gross income from the sale or other disposition of stocks or securities or
certain foreign currencies (or options, futures or forward contracts thereon)
held less than three months ("short-short gains") (foreign currency gains,
including those derived from options, futures and forward contracts, will not,
in any event, be characterized as short-short gains if they are directly related
to the registered investment company's investments in stocks, options or futures
thereon), (c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the Portfolio's assets is represented by
cash, government securities and other securities limited in respect of any one
issuer to 5% of the Portfolio's assets and to not more than 10% of the voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than government
securities), and (d) distribute to shareholders at least 90% of its investment
company taxable income (which does not include net long-term capital gains, if
any, of the Portfolio). So long as the Portfolio qualifies as a regulated
investment company, such Portfolio will not be subject to federal income tax on
the net investment company taxable income or net capital gains distributed to
shareholders as ordinary income dividend or capital gains dividends. Each
Portfolio is intended to meet these qualification requirements.
It is the policy of each Portfolio to distribute to its shareholders
substantially all of its ordinary income and net long-term capital gains
realized during each fiscal year. All distributions are reinvested in shares of
the Portfolio at net asset value unless the transfer agent is instructed
otherwise.
Each Portfolio of the Trust is also subject to variable contract asset
diversification regulations prescribed by the U.S. Treasury Department under the
Code. These regulations generally provide that, as of the end of each calendar
quarter or within 30 days thereafter, no more than 55% of the total assets of
the Portfolio 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, each Contract generally will be
treated as invested in the underlying assets of the applicable Portfolios, and
all securities of the same issuer are considered a single investment, but each
U.S. agency or instrumentality is treated as a separate issuer. If a Portfolio
fails to comply with these regulations, the contracts invested in that Portfolio
may not be treated as annuity, endowment or life insurance contracts for tax
purposes.
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See the Contract prospectus for information regarding the federal income tax
treatment of the contracts and distributions to the separate accounts.
PRICE OF SHARES
Shares of each Portfolio of the Trust are sold at the net asset value per share
calculated once daily at the close of regular trading on each day the New York
Stock Exchange is open. The current value of the Portfolio's total assets, less
liabilities, is divided by the total number of shares outstanding, and the
result is the net asset value per share. Assets are generally valued at their
market value, where available, except that short-term securities with 60 days or
less to maturity are valued on an amortized cost basis. For a complete
description of the procedures involved in valuing various Trust assets, see the
Statement of Additional Information.
PURCHASES AND REDEMPTIONS
Shares of the Trust currently are offered only to the Account, a separate
account of the Life Company. At present, Trust shares are only used as the
investment vehicle for the Contract, an annuity contract. The Life Company may
issue variable life contracts that also will use the Trust as the underlying
investment. The offering of Trust shares to variable annuity and variable life
separate accounts is referred to as "mixed funding." It may be disadvantageous
for variable annuity separate accounts and variable life separate accounts to
invest in the Trust simultaneously. Although neither the Life Company nor the
Trust currently foresees such disadvantages either to variable annuity or
variable life contract owners, the Board of Trustees of the Trust would monitor
events in order to identify any material conflicts to determine what action, if
any, should be taken in response thereto. Shares of the Trust may be offered to
separate accounts of other life insurance companies which are affiliates of the
Life Company.
All shares may be purchased or redeemed by the separate account without any
sales or redemption charge at the next computed net asset value. Purchases and
redemptions are made subsequent to corresponding purchases and redemptions of
units of the separate account without delay.
Except in extraordinary circumstances and as permissible under the 1940 Act, the
redemption proceeds are paid on or before the seventh day following the request
for redemption.
SHAREHOLDER VOTING RIGHTS
All shares of the Trust have equal voting rights and may be voted in the
election of Trustees and on other matters submitted to the vote of the
shareholders. Shareholders' meetings ordinarily will not be held unless required
by the 1940 Act. As permitted by Massachusetts law, there normally will be no
shareholders' meetings for the purpose of electing Trustees unless and until
such time as fewer than a majority of the Trustees holding office have been
elected by shareholders. At that time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees. The Trustees must call a
meeting of shareholders for the purpose of voting upon the removal of any
Trustee when requested to do so by the record holders of 10% of the outstanding
shares of the Trust. A Trustee may be removed after the holders of record of not
less than two-thirds of the outstanding shares have declared that the Trustee be
removed either by declaration in writing or by votes cast in person or by proxy.
Except as set forth above, the Trustees shall continue to hold office and may
appoint successor Trustees, provided that immediately after the appointment of
any successor Trustee, at least two-thirds of the Trustees have been elected by
the shareholders. Shares do not have cumulative voting rights. Thus, holders of
a majority of the shares voting for the election of Trustees can elect all the
Trustees. No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
that amendments to conform the Declaration to the requirements of applicable
federal laws or regulations or the regulated investment company provisions of
the Code may be made by the Trustees without the vote or consent of
shareholders. If not terminated by the vote or written consent of a majority of
its outstanding shares, the Trust will continue indefinitely.
In matters affecting only a particular Portfolio, the matter shall have been
effectively acted upon by a majority vote of that Portfolio even though: (1) the
matter has not been approved by a majority vote of any other Portfolio; or (2)
the matter has not been approved by a majority vote of the Trust.
Shareholders of a Massachusetts business trust may, under certain circumstances,
be held personally liable as partners for the obligations of the Trust. The risk
of a shareholder incurring any financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations. The Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the
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Trust and provides that notice of the disclaimer must be given in each
agreement, obligation or instrument entered into or executed by the Trust or
Trustees. The Declaration of Trust provides for indemnification of any
shareholder held personally liable for the obligations of the Trust and also
provides for the Trust to reimburse the shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Price Waterhouse LLP has been selected as independent accountants for the Trust.
The firms of Shereff, Friedman, Hoffman & Goodman, LLP and Blazzard, Grodd &
Hasenauer, P.C. have been selected to provide legal counsel to the Trust.
INQUIRIES
Contract owner inquiries should be directed to Anchor National Life Insurance
Company, Service Center, P.O. Box 54299, Los Angeles, California 90054-0299,
telephone number (800) 445-7862.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Statement of Additional Information
SEASONS SERIES TRUST
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the current Prospectus of Seasons Series Trust ("Trust").
The Prospectus may be obtained by writing to the Trust at the following address:
P.O. Box 54299
Los Angeles, California 90054-0299
___________, 1996
<PAGE>
TABLE OF CONTENTS
TOPIC PAGE
- ----- ----
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . B-3
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS . . . . . . . . . . . . . .B-30
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-33
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .B-34
TRUST OFFICERS AND TRUSTEES. . . . . . . . . . . . . . . . . . . . . . . . .B-36
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT . . . . . . . . . . . . . . . .B-38
SUBADVISORY AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .B-39
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES . . . . . . . . . . . . . . . . .B-40
PRICE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-40
EXECUTION OF PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . .B-41
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-43
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-43
Independent Accountants and Legal Counsel . . . . . . . . . . . . . . .B-43
Reports to Shareholders . . . . . . . . . . . . . . . . . . . . . . . .B-43
Shareholder and Trustee Responsibility. . . . . . . . . . . . . . . . .B-43
Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . .B-44
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THE TRUST
The Trust, organized as a Massachusetts business trust on October 10,
1995, is an open-end management investment company. Shares of the Trust are
issued and redeemed only in connection with investments in and payments under
variable annuity contracts, and may be sold to fund variable life contracts
in the future. The Trust currently consists of five separate series or
portfolios (each, a "Portfolio" and collectively the "Portfolios"), including
four multi-managed Portfolios (each, a "Multi-Managed Portfolio," and
collectively, the "Multi-Managed Portfolios") and the T. Rowe Price Stock
Portfolio (the "Stock Portfolio"), as described in the Prospectus.
Shares of the Trust are held by Variable Annuity Account Five, a separate
account of Anchor National Life Insurance Company ("Life Company"), a California
life insurance company. The Life Company is a wholly-owned subsidiary of Sun
Life Insurance Company of America, a Maryland corporation wholly-owned by
SunAmerica Inc., a Maryland corporation.
SunAmerica Asset Management Corp. ("SAAMCo" or the "Adviser"), an indirect,
wholly owned subsidiary of The Life Company, serves as investment adviser for
each Portfolio. As described in the Prospectus, SAAMCo may retain subadvisers
(each a "Subadviser" and collectively the "Subadvisers")to assist in management
of one or more Portfolios. The Adviser and Subadvisers are sometimes referred
to herein as the "Managers" or individually as a "Manager".
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the Portfolios are
described in the Prospectus. Certain types of securities in which the
Portfolios may invest and certain investment practices which the Portfolios may
employ, which are described under "Investment Techniques and Risk Factors" in
the Prospectus, are discussed more fully below.
ILLIQUID AND RESTRICTED SECURITIES. No more than 15% of the value of a
Portfolio's net assets, determined as of the date of purchase, may be invested
in illiquid securities including repurchase agreements which have a maturity of
longer than seven days, interest-rate swaps, currency swaps, caps, floors and
collars, or in other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. There will generally be a lapse of
time between a mutual
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fund's decision to sell an unregistered security and the registration of such
security promoting sale. Adverse market conditions could impede a public
offering of such securities. When purchasing unregistered securities, each of
the Portfolios will seek to obtain the right of registration at the expense of
the issuer (except in the case of Rule 144A securities).
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act for which there is a readily available market may not be deemed
to be illiquid. The Manager will monitor the liquidity of such restricted
securities subject to the supervision of the Trustees. In reaching liquidity
decisions the Manager will consider, INTER ALIA, pursuant to guidelines and
procedures established by the Trustees, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).
Commercial paper issues in which a Portfolio's net assets may be invested
include securities issued by major corporations without registration under the
Securities Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the so-
called private placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper
is restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. A Portfolio's 15%
limitation on investments in illiquid securities includes Section 4(2) paper
other than Section 4(2) paper that the Manager has determined to be liquid
pursuant to guidelines established by the Trustees. The Trustees delegated to
the Manager the function of making day-to-day determinations of liquidity with
respect to Section 4(2) paper, pursuant to guidelines approved by the Trustees
that require the Manager to take into account the same factors described above
for other restricted securities and require the Manager to perform the same
monitoring and reporting functions.
DOLLAR ROLLS. The Portfolios may enter into "dollar rolls" in which a
Portfolio sells mortgage or other asset-backed securities ("Roll Securities")
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Portfolio foregoes principal and
interest paid on the Roll Securities. The Portfolio is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the
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"drop") as well as by the interest earned on the cash proceeds of the initial
sale. The Portfolio also could be compensated through the receipt of fee income
equivalent to a lower forward price. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction. A Portfolio will only enter into covered rolls.
Because "roll" transactions involve both the sale and purchase of a security,
they may cause the reported portfolio turnover rate to be higher than that
reflecting typical portfolio management activities.
Dollar rolls involve certain risks including the following: if the broker-
dealer to whom the Portfolio sells the security becomes insolvent, the
Portfolio's right to purchase or repurchase the security subject to the dollar
roll may be restricted and the instrument which the Portfolio is required to
repurchase may be worth less than an instrument which the Portfolio originally
held. Successful use of dollar rolls will depend upon the Manager's ability to
predict correctly interest rates and in the case of mortgage dollar rolls,
mortgage prepayments. For these reasons, there is no assurance that dollar
rolls can be successfully employed.
HYBRID INSTRUMENTS; INDEXED/STRUCTURED SECURITIES. Hybrid Instruments,
including indexed or structured securities, have been developed and combine the
elements of futures contracts or options with those of debt, preferred equity or
a depository instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid
Instrument will be a debt security, preferred stock, depository share, trust
certificate, certificate of deposit or other evidence of indebtedness on which a
portion of or all interest payments, and/or the principal or stated amount
payable at maturity, redemption or retirement, is determined by reference to
prices, changes in prices, or differences between prices, of securities,
currencies, intangibles, goods, articles or commodities (collectively
"Underlying Assets") or by another objective index, economic factor or other
measure, such as interest rates, currency exchange rates, commodity indices, and
securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may
take a variety of forms, including, but not limited to, debt instruments with
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms related to a
particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected
declines in interest rates in several European countries, but avoid the
transactions costs associated with buying and currency-hedging the foreign bond
positions. One solution would be to purchase a U.S. dollar-denominated Hybrid
Instrument whose redemption price is linked to the average three year interest
rate in a designated group of countries. The redemption price formula would
provide for payoffs of greater than par if the average interest rate was lower
than a specified level, and payoffs of less than par if rates were above the
specified level. Furthermore, the Portfolio could limit the downside risk of
the security by establishing a minimum redemption price so that the principal
paid at maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement, known as a
structured security with an embedded put option, would be to give the Portfolio
the desired European bond exposure while avoiding currency risk, limiting
downside market risk, and lowering transactions costs. Of course, there is no
guarantee that the strategy will be successful and the Portfolio could lose
money if, for
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example, interest rates do not move as anticipated or credit problems develop
with the issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of the
risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future. Reference is also made to
the discussion of futures, options, and forward contracts herein for a
discussion of the risks associated with such investments.
Hybrid Instruments are potentially more volatile and carry greater market
risks than traditional debt instruments. Depending on the structure of the
particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, Hybrid Instruments
may bear interest at above market rates but bear an increased risk of principal
loss (or gain). The latter scenario may result if "leverage" is used to
structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid Instrument,
thereby magnifying the risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the instruments are
often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
Portfolio and the issuer of the Hybrid Instrument, the creditworthiness of the
counter party or issuer of the Hybrid Instrument would be an additional risk
factor which the Portfolio would have to consider and monitor. Hybrid
Instruments also may not be subject to regulation of the Commodity Futures
Trading Commission (the "CFTC"), which generally regulates the trading of
commodity futures by U.S. persons, the Securities and Exchange Commission (the
"SEC"), which regulates the offer and sale of securities by and to U.S. persons,
or any other governmental regulatory authority.
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The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Portfolio. Accordingly, each Portfolio will limit its investments in
Hybrid Instruments to 10% of total assets at the time of purchase. However,
because of their volatility, it is possible that a Portfolio's investment in
Hybrid Instruments will account for more than 10% of the Portfolio's return
(positive or negative).
WARRANTS. A Portfolio may invest in warrants which give the holder of the
warrant a right to purchase a given number of shares of a particular issue at a
specified price until expiration. Such investments generally can provide a
greater potential for profit or loss than investments of equivalent amounts in
the underlying common stock. The prices of warrants do not necessarily move
with the prices of the underlying securities. If the holder does not sell the
warrant, he risks the loss of his entire investment if the market price of the
underlying stock does not, before the expiration date, exceed the exercise price
of the warrant plus the cost thereof. Investment in warrants is a speculative
activity. Warrants pay no dividends and confer no rights (other than the right
to purchase the underlying stock) with respect to the assets of the issuer.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENT. A Portfolio may
purchase or sell such securities on a "when-issued" or "delayed delivery" basis
and may purchase securities on a firm commitment basis. Although a Portfolio
will enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered into,
the Portfolio may dispose of a commitment prior to settlement. "When-issued" or
"delayed delivery" refers to securities whose terms and indenture are available
and for which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date. During the
period between commitment by a Portfolio and settlement (generally within two
months but not to exceed 120 days), no payment is made for the securities
purchased by the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation, and the value
at delivery may be less than the purchase price. A Portfolio will maintain a
segregated account with its custodian, consisting of cash or liquid securities
at least equal to the value of purchase commitments until payment is made. A
Portfolio will likewise segregate liquid assets in respect of securities sold
on a delayed delivery basis.
A Portfolio will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When a Portfolio engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in a Portfolio losing
the opportunity to obtain a price and yield considered to be advantageous. If a
Portfolio chooses to (i) dispose of the right to acquire a when-issued security
prior to its acquisition or (ii) dispose of its right to deliver or receive
against a firm commitment, it may incur a gain or loss. (At the time a
Portfolio makes a commitment to purchase or sell a security on a when-issued or
firm commitment basis, it records the transaction and reflects the value of the
security purchased, or if a sale, the proceeds to be received in determining its
net asset value.)
To the extent a Portfolio engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Portfolio enters into such transactions
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only with the intention of actually receiving or delivering the securities,
although (as noted above) when-issued securities and firm commitments may be
sold prior to the settlement date. In addition, changes in interest rates in a
direction other than that expected by the Manager before settlement of a
purchase will affect the value of such securities and may cause a loss to a
Portfolio.
When-issued transactions and firm commitments may be used to offset
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling prices, a Portfolio might sell securities in
its portfolio on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, a Portfolio might sell portfolio securities and purchase the same or
similar securities on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields.
STANDBY COMMITMENTS -- Standby commitments are put options that entitle
holders to same day settlement at an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A Portfolio may acquire standby commitments to enhance the liquidity
of portfolio securities, but only when the issuers of the commitments present
minimal risk of default. Ordinarily, the Portfolio may not transfer a standby
commitment to a third party, although it could sell the underlying municipal
security to a third party at any time. A Portfolio may purchase standby
commitments separate from or in conjunction with the purchase of securities
subject to such commitments. In the latter case, the Portfolio would pay a
higher price for the securities acquired, thus reducing their yield to maturity.
Standby commitments will not affect the dollar-weighted average maturity of the
Portfolio, or the valuation of the securities underlying the commitments.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. The Manager
may rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. Standby commitments are
subject to certain risks, including the ability of issuers of standby
commitments to pay for securities at the time the commitments are exercised; the
fact that standby commitments are not marketable by the Portfolios; and the
possibility that the maturities of the underlying securities may be different
from those of the commitments.
INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, COLLARS AND FLOORS. In order to
protect the value of Portfolio from interest rate fluctuations and to hedge
against fluctuations in the fixed income market in which certain of the
Portfolio's investments are traded, the Portfolio may enter into interest-rate
swaps and mortgage swaps or purchase or sell interest-rate caps, floors or
collars. The Portfolio will enter into these hedging transactions primarily to
preserve a return or spread on a particular investment or portion of the
portfolio and to protect against any increase in the price of securities the
Portfolio anticipates purchasing at a later date. The Portfolio may also enter
into interest-rate swaps for non-hedging purposes. Interest-rate swaps are
individually negotiated, and the Portfolio expects to achieve an acceptable
degree of correlation between its portfolio investments and interest-rate
positions. A Portfolio will only enter into interest-rate swaps on a net basis,
which means that the two payment streams are netted out, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. Interest-rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest-rate swaps is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make. If the other party to an
interest-rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive. The use of interest-rate swaps is a highly specialized activity which
involves investment techniques and risks different
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from those associated with ordinary portfolio securities transactions. All of
these investments may be deemed to be illiquid for purposes of the Portfolio's
limitation on investment in such securities. Inasmuch as these investments are
entered into for good faith hedging purposes, and inasmuch as segregated
accounts will be established with respect to such transactions, the Adviser
believes such obligations do not constitute senior securities and accordingly,
will not treat them as being subject to its borrowing restrictions. The net
amount of the excess if any, of the Portfolio's obligations over its
entitlements with respect to each interest-rate swap will be accrued on a daily
basis and an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by a custodian that satisfies the requirements of the 1940 Act. The
Portfolio will also establish and maintain such segregated accounts with
respect to its total obligations under any interest-rate swaps that are not
entered into on a net basis and with respect to any interest-rate caps,
collars and floors that are written by the Portfolio.
A Portfolio will enter into these transactions only with banks and
recognized securities dealers believed by the Manager to present minimal credit
risk in accordance with guidelines established by the Board of Trustees. If
there is a default by the other party to such a transaction, the Portfolio will
have to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
Mortgage swaps are similar to interest-rate swaps in that they represent
commitments to pay and receive interest. The notional principal amount, upon
which the value of the interest payments is based, is tied to reference pool or
pools of mortgages.
The purchase of an interest-rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest-rate floor.
REPURCHASE AGREEMENTS. A Portfolio may enter into repurchase agreements
with banks, brokers or securities dealers. In such agreements, the seller
agrees to repurchase the security at a mutually agreed-upon time and price. The
period of maturity is usually quite short, either overnight or a few days
although it may extend over a number of months. The repurchase price is in
excess of the purchase price by an amount which reflects an agreed-upon rate of
return effective for the period of time a Portfolio's money is invested in the
security. Whenever a Portfolio enters into a repurchase agreement, it obtains
collateral having a value at least equal to the amount of the purchase price.
The instruments held as collateral are valued daily and if the value of the
instruments declines, the Portfolio will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreements declines, the Portfolio may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Portfolio may be delayed or limited. The
Trustees have established guidelines to be used by the Manager in connection
with transactions in repurchase agreements and will regularly monitor each
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Portfolio's use of repurchase agreements. A Portfolio will not invest in
repurchase agreements maturing in more than seven days if the aggregate of such
investments along with other illiquid securities exceeds 15% of the value of its
net assets. However, there is no limit on the amount of a Portfolio's net
assets that may be subject to repurchase agreements having a maturity of seven
days or less for temporary defensive purposes.
REVERSE REPURCHASE AGREEMENTS. A Portfolio may enter into reverse
repurchase agreements with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Manager to be
creditworthy. In a reverse repurchase agreement, the Portfolio sells a security
and agrees to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. It may also be
viewed as the borrowing of money by the Portfolio. The Portfolio's investment
of the proceeds of a reverse repurchase agreement is the speculative factor
known as leverage. A Portfolio will enter into a reverse repurchase agreement
only if the interest income from investment of the proceeds is expected to be
greater than the interest expense of the transaction and the proceeds are
invested for a period no longer than the term of the agreement. The Portfolio
will maintain with the Custodian a separate account with a segregated portfolio
of cash or liquid securities in an amount at least equal to its purchase
obligations under these agreements (including accrued interest). In the event
that the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
repurchase obligation, and the Portfolio's use of proceeds of the agreement
may effectively be restricted pending such decision. Reverse repurchase
agreements are considered to be borrowings and are subject to the percentage
limitations on borrowings. See "Investment Restrictions."
PORTFOLIO TRADING. A Portfolio may engage in portfolio trading when it is
believed by the Manager that the sale of a security owned and the purchase of
another security of better value can enhance principal and/or increase income.
A security may be sold to avoid any prospective decline in market value in light
of what is evaluated as an expected rise in prevailing yields, or a security may
be purchased in anticipation of a market rise (a decline in prevailing yields).
A security also may be sold and a comparable security purchased coincidentally
in order to take advantage of what is believed to be a disparity in the normal
yield and price relationship between the two securities.
FOREIGN SECURITIES. Investments in foreign securities offer potential
benefits not available from investments solely in securities of domestic issuers
by offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not move in a manner
parallel to U.S. markets.
Each Portfolio may invest in securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. ADRs are securities, typically issued by a U.S.
financial institution, that evidence ownership interests in a security or a pool
of securities issued by a foreign issuer and deposited with the depository. ADRs
may be sponsored or unsponsored. A sponsored ADR is issued by a depository
which has an exclusive relationship with the issuer of the underlying security.
An unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing
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the unsponsored ADR. The depository of an unsponsored ADR is under no obligation
to distribute shareholder communications received from the underlying issuer or
to pass through to the holders of the unsponsored ADR voting rights with respect
to the deposited securities or pool of securities. A Portfolio may invest in
either type of ADR. Although the U.S. investor holds a substitute receipt of
ownership rather than direct stock certificates, the use of the depository
receipts in the United States can reduce costs and delays as well as potential
currency exchange and other difficulties. The Portfolio may purchase securities
in local markets and direct delivery of these ordinary shares to the local
depository of an ADR agent bank in the foreign country. Simultaneously, the ADR
agents create a certificate which settles at the Trust's custodian in five days.
The Portfolio may also execute trades on the U.S. markets using existing ADRs.
A foreign issuer of the security underlying an ADR is generally not subject to
the same reporting requirements in the United States as a domestic issuer.
Accordingly the information available to a U.S. investor will be limited to the
information the foreign issuer is required to disclose in its own country and
the market value of an ADR may not reflect undisclosed material information
concerning the issuer of the underlying security. For purposes of a Portfolio's
investment policies, the Portfolio's investments in these types of securities
will be deemed to be investments in the underlying securities. Generally ADRs,
in registered form, are dollar denominated securities designed for use in the
U.S. securities markets, which represent and may be converted into the
underlying foreign security. EDRs, in bearer form, are designed for use in the
European securities markets.
Investments in foreign securities, including securities of developing
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (e.g.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
than the U.S.; increased possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and differences (which may be favorable or unfavorable)
between the U.S. economy and foreign economies.
PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS") -- Janus Capital
Corporation may invest the assets of the Janus/growth component of each
Multi-Managed Portfolio in PFICs, which are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets
for the production of passive income. Passive income includes dividends,
interest, royalties, rents and annuities. To the extent that an Multi-Managed
Portfolio invests in PFICs, income tax regulations may require the Portfolio
to recognize income associated with the PFIC prior to the actual receipt of
any such income.
HEDGING AND INCOME ENHANCEMENT STRATEGIES. Each Portfolio may write (I.E.,
sell) call options ("calls") on securities that are traded on U.S. and foreign
securities exchanges and over-the-counter markets to enhance income through the
receipt of premiums from expired calls and any net profits from closing purchase
transactions. After any such sale up to 100% of a Portfolio's total
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assets may be subject to calls. All such calls written by a Portfolio must be
"covered" while the call is outstanding (I.E., the Portfolio must own the
securities subject to the call or other securities acceptable for applicable
escrow requirements). Calls on Futures (defined below) used to enhance income
must be covered by deliverable securities or by liquid assets segregated to
satisfy the Futures contract. If a call written by the Portfolio is exercised,
the Portfolio forgoes any profit from any increase in the market price above the
call price of the underlying investment on which the call was written.
Primarily for hedging purposes, and from time to time for income
enhancement, each Portfolio may use interest rate futures contracts, foreign
currency futures contracts and stock and bond index futures contracts,
including futures on U.S. government securities (together, "Futures");
forward contracts on foreign currencies("Forward Contracts"); and call and
put options on equity and debt securities,Futures, stock and bond indices and
foreign currencies; and each Multi-Managed Portfolio may, through its
WMC/fixed income component, invest in yield curve options (up to 5% of total
assets allocated to the WMC/fixed income component)(all the foregoing
referred to as "Hedging Instruments"). Hedging Instruments may be used to
attempt to: (i) protect against possible declines in the market value of a
Portfolio's portfolio resulting from downward trends in the equity and debt
securities markets (generally due to a rise in interest rates); (ii) protect
a Portfolio's unrealized gains in the value of its equity and debt securities
which have appreciated; (iii) facilitate selling securities for investment
reasons; (iv) establish a position in the equity and debt securities markets
as a temporary substitute for purchasing particular equity and debt
securities; or (v) reduce the risk of adverse currency fluctuations.
A Portfolio's strategy of hedging with Futures and options on Futures will
be incidental to its activities in the underlying cash market. When hedging to
attempt to protect against declines in the market value of the portfolio, to
permit a Portfolio to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities for
investment reasons, a Portfolio could: (i) sell Futures; (ii) purchase puts on
such Futures or securities; or (iii) write calls on securities held by it or on
Futures. When hedging to attempt to protect against the possibility that
portfolio securities are not fully included in a rise in value of the debt
securities market, a Portfolio could: (i) purchase Futures, or (ii) purchase
calls on such Futures or on securities. When hedging to protect against
declines in the dollar value of a foreign currency-denominated security, a
Portfolio could: (i) purchase puts on that foreign currency and on foreign
currency Futures; (ii) write calls on that currency or on such Futures; or (iii)
enter into Forward Contracts at a lower rate than the spot ("cash") rate.
Additional information about the Hedging Instruments the Portfolios may use is
provided below.
OPTIONS
OPTIONS ON SECURITIES. As noted above, each Portfolio may write and
purchase call and put options (including, in the case of the Multi-Managed
Portfolios, yield curve options) on equity and debt securities.
When a Portfolio writes a call on a security it receives a premium and
agrees to sell the underlying security to a purchaser of a corresponding call on
the same security during the call period (usually not more than 9 months) at a
fixed price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period. A Portfolio has
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retained the risk of loss should the price of the underlying security decline
during the call period, which may be offset to some extent by the premium.
To terminate its obligation on a call it has written, a Portfolio may
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call written was more
or less than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because a Portfolio retains the
underlying security and the premium received. If a Portfolio could not effect a
closing purchase transaction due to lack of a market, it would hold the callable
securities until the call expired or was exercised.
When a Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period at a fixed exercise price. A Portfolio benefits only if the
call is sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the transaction
costs and the premium paid and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and a Portfolio will lose its premium payment and the right to
purchase the underlying investment.
A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise price
during the option period. Writing a put covered by segregated liquid assets
equal to the exercise price of the put has the same economic effect to a
Portfolio as writing a covered call. The premium a Portfolio receives from
writing a put option represents a profit as long as the price of the underlying
investment remains above the exercise price. However, a Portfolio has also
assumed the obligation during the option period to buy the underlying investment
from the buyer of the put at the exercise price, even though the value of the
investment may fall below the exercise price. If the put expires unexercised, a
Portfolio (as the writer of the put) realizes a gain in the amount of the
premium. If the put is exercised, a Portfolio must fulfill its obligation to
purchase the underlying investment at the exercise price, which will usually
exceed the market value of the investment at that time. In that case, a
Portfolio may incur a loss, equal to the sum of the sale price of the underlying
investment and the premium received minus the sum of the exercise price and any
transaction costs incurred.
A Portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put. Furthermore, effecting such a closing purchase transaction will
permit a Portfolio to write another put option to the extent that the exercise
price thereof is secured by the deposited assets, or to utilize the proceeds
from the sale of such assets for other investments by the Portfolio. A
Portfolio will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from
writing the option.
When a Portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a put on an
investment a Portfolio owns enables the Portfolio to protect itself during the
put period against a decline in the value of the underlying investment below the
exercise price by selling such underlying investment at the exercise price to a
seller of a corresponding put.
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If the market price of the underlying investment is equal to or above the
exercise price and as a result the put is not exercised or resold, the put will
become worthless at its expiration date, and the Portfolio will lose its premium
payment and the right to sell the underlying investment pursuant to the put.
The put may, however, be sold prior to expiration (whether or not at a profit).
Buying a put on an investment a Portfolio does not own permits the
Portfolio either to resell the put or buy the underlying investment and sell it
at the exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not exercised,
the put will become worthless on its expiration date. In the event of a decline
in the stock market, a Portfolio could exercise or sell the put at a profit to
attempt to offset some or all of its loss on its portfolio securities.
When writing put options on securities, to secure its obligation to pay for
the underlying security, a Portfolio will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
A Portfolio therefore forgoes the opportunity of investing the segregated assets
or writing calls against those assets. As long as the obligation of a Portfolio
as the put writer continues, it may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring a Portfolio to take
delivery of the underlying security against payment of the exercise price. A
Portfolio has no control over when it may be required to purchase the underlying
security, since it may be assigned an exercise notice at any time prior to the
termination of its obligation as the writer of the put. This obligation
terminates upon expiration of the put, or such earlier time at which a Portfolio
effects a closing purchase transaction by purchasing a put of the same series as
that previously sold. Once a Portfolio has been assigned an exercise notice, it
is thereafter not allowed to effect a closing purchase transaction.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio may write and purchase puts
and calls on foreign currencies. A call written on a foreign currency by a
Portfolio is "covered" if the Portfolio owns the underlying foreign currency
covered by the call or has an absolute and immediate right to acquire that
foreign currency without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other foreign currency held in its portfolio. A put option is
"covered" if the Portfolio deposits with its custodian cash or liquid securities
with a value at least equal to the exercise price of the put option. A call
written by a Portfolio on a foreign currency is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against a decline in the
U.S. dollar value of a security which the Portfolio owns or has the right to
acquire and which is denominated in the currency underlying the option due to
an adverse change in the exchange rate. In such circumstances, a Portfolio
collateralizes the option by maintaining in a segregated account with the
Trust's custodian cash or liquid securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars marked-to-market daily.
OPTIONS ON SECURITIES INDICES. As noted above, each Portfolio may write
and purchase call and put options on securities indices. Puts and calls on
broadly-based securities indices are similar to puts and calls on securities
except that all settlements are in cash and gain or loss depends on changes in
the index in question (and thus on price movements in the securities market
generally) rather than on price movements in individual securities or Futures.
When a Portfolio buys a call on a securities index, it pays a premium. During
the call period, upon exercise of a call by a Portfolio, a seller of a
corresponding call on the same investment will pay the Portfolio an amount of
cash to
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settle the call if the closing level of the securities index upon which the call
is based is greater than the exercise price of the call. That cash payment is
equal to the difference between the closing price of the index and the exercise
price of the call times a specified multiple (the "multiplier") which determines
the total dollar value for each point of difference. When a Portfolio buys a
put on a securities index, it pays a premium and has the right during the put
period to require a seller of a corresponding put, upon the Portfolio's exercise
of its put, to deliver to the Portfolio an amount of cash to settle the put if
the closing level of the securities index upon which the put is based is less
than the exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
FUTURES AND OPTIONS ON FUTURES
FUTURES. Upon entering into a Futures transaction, a Portfolio will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited with the
Trust's custodian in an account registered in the futures broker's name; however
the futures broker can gain access to that account only under specified
conditions. As the Future is marked to market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis. Prior to expiration of the Future, if a
Portfolio elects to close out its position by taking an opposite position, a
final determination of variation margin is made, additional cash is required to
be paid by or released to the Portfolio, and any loss or gain is realized for
tax purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.
Interest rate futures contracts are purchased or sold for hedging purposes
to attempt to protect against the effects of interest rate changes on a
Portfolio's current or intended investments in fixed-income securities. For
example, if a Portfolio owned long-term bonds and interest rates were expected
to increase, that Portfolio might sell interest rate futures contracts. Such a
sale would have much the same effect as selling some of the long-term bonds in
that Portfolio's portfolio. However, since the Futures market is more liquid
than the cash market, the use of interest rate futures contracts as a hedging
technique allows a Portfolio to hedge its interest rate risk without having to
sell its portfolio securities. If interest rates did increase, the value of the
debt securities in the portfolio would decline, but the value of that
Portfolio's interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value of that
Portfolio from declining as much as it otherwise would have. On the other hand,
if interest rates were expected to decline, interest rate futures contracts may
be purchased to hedge in anticipation of subsequent purchases of long-term bonds
at higher prices. Since the fluctuations in the value of the interest rate
futures contracts should be similar to that of long-term bonds, a Portfolio
could protect itself against the effects of the anticipated rise in the value of
long-term bonds without actually buying them until the necessary cash became
available or the market had stabilized. At that time, the interest rate futures
contracts could be liquidated and that Portfolio's cash reserves could then be
used to buy long-term bonds on the cash market.
Purchases or sales of stock or bond index futures contracts are used for
hedging purposes to attempt to protect a Portfolio's current or intended
investments from broad fluctuations in stock or bond prices. For example, a
Portfolio may sell stock or bond index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Portfolio's securities portfolio that might otherwise result. If such decline
occurs, the loss in value of portfolio
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securities may be offset, in whole or part, by gains on the Futures position.
When a Portfolio is not fully invested in the securities market and anticipates
a significant market advance, it may purchase stock or bond index futures
contracts in order to gain rapid market exposure that may, in part or entirely,
offset increases in the cost of securities that the Portfolio intends to
purchase. As such purchases are made, the corresponding positions in stock or
bond index futures contracts will be closed out.
As noted above, each Portfolio may purchase and sell foreign currency
futures contracts for hedging or income enhancement purposes to attempt to
protect its current or intended investments from fluctuations in currency
exchange rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of foreign-
denominated securities to be acquired, even if the value of such securities in
the currencies in which they are denominated remains constant. Each Portfolio
may sell futures contracts on a foreign currency, for example, when it holds
securities denominated in such currency and it anticipates a decline in the
value of such currency relative to the dollar. In the event such decline
occurs, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the Futures
contracts. However, if the value of the foreign currency increases relative to
the dollar, the Portfolio's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities since a decline
in the price of the security stated in terms of the foreign currency may be
greater than the increase in value as a result of the change in exchange rates.
Conversely, each Portfolio could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing Futures contracts
on the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Portfolio purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Portfolio will sustain
losses on its futures position which could reduce or eliminate the benefits of
the reduced cost of portfolio securities to be acquired.
OPTIONS ON FUTURES. As noted above, the Portfolios may purchase and write
options on interest rate futures contracts, stock and bond index futures
contracts and foreign currency futures contracts. (Unless otherwise specified,
options on interest rate futures contracts, options on stock and bond index
futures contracts and options on foreign currency futures contracts are
collectively referred to as "Options on Futures.")
The writing of a call option on a Futures contract constitutes a partial
hedge against declining prices of the securities in the portfolio. If the
Futures price at expiration of the option is below the exercise price, the
Portfolio will retain the full amount of the option premium, which provides a
partial hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a Futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures contract. If the
Futures price at expiration of the put option is higher than the exercise price,
a Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of
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securities which the Portfolio intends to purchase. If a put or call option a
Portfolio has written is exercised, the Portfolio will incur a loss which will
be reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its Options on Futures positions, a Portfolio's losses from
exercised Options on Futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
A Portfolio may purchase Options on Futures for hedging purposes, instead
of purchasing or selling the underlying Futures contract. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, a
Portfolio could, in lieu of selling a Futures contract, purchase put options
thereon. In the event that such decrease occurs, it may be offset, in whole or
part, by a profit on the option. If the market decline does not occur, the
Portfolio will suffer a loss equal to the price of the put. Where it is
projected that the value of securities to be acquired by a Portfolio will
increase prior to acquisition, due to a market advance or changes in interest or
exchange rates, a Portfolio could purchase call Options on Futures, rather than
purchasing the underlying Futures contract. If the market advances, the
increased cost of securities to be purchased may be offset by a profit on the
call. However, if the market declines, the Portfolio will suffer a loss equal
to the price of the call but the securities which the Portfolio intends to
purchase may be less expensive.
FORWARD CONTRACTS
A Forward Contract involves bilateral obligations of one party to purchase,
and another party to sell, a specific currency at a future date (which may be
any fixed number of days from the date of the contract agreed upon by the
parties), at a price set at the time the contract is entered into. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. No price is paid
or received upon the purchase or sale of a Forward Contract.
A Portfolio may use Forward Contracts to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities a Portfolio owns or
intends to acquire, but it does fix a rate of exchange in advance. In addition,
although Forward Contracts limit the risk of loss due to a decline in the value
of the hedged currencies, at the same time they limit any potential gain that
might result should the value of the currencies increase.
A Portfolio may enter into Forward Contracts with respect to specific
transactions. For example, when a Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a
Portfolio anticipates receipt of dividend payments in a foreign currency, the
Portfolio may desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such payment by entering into a Forward Contract, for
a fixed amount of U.S. dollars per unit of foreign currency, for the purchase or
sale of the amount of foreign currency involved in the underlying transaction.
A Portfolio will thereby be able to protect itself against a possible loss
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resulting from an adverse change in the relationship between the currency
exchange rates during the period between the date on which the security is
purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
A Portfolio may also use Forward Contracts to lock in the U.S. dollar value
of portfolio positions ("position hedge"). In a position hedge, for example,
when a Portfolio believes that foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a Forward Contract to sell an amount
of that foreign currency approximating the value of some or all of the portfolio
securities denominated in such foreign currency, or when a Portfolio believes
that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a Forward Contract to buy that foreign currency for
a fixed dollar amount. In this situation a Portfolio may, in the alternative,
enter into a Forward Contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Portfolio believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall whenever
there is a decline in the U.S. dollar value of the currency in which portfolio
securities of the Portfolio are denominated ("cross-hedged"). A Portfolio may
also hedge investments denominated in a foreign currency by entering into
forward currency contracts with respect to a foreign currency that is expected
to correlate to the currency in which the investments are denominated ("proxy
hedging").
The Portfolios will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that a
Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Trust's custodian will place cash or liquid securities
in a separate account of the Portfolio having a value equal to the aggregate
amount of the Portfolio's commitments under Forward Contracts entered into
with respect to position hedges and cross-hedges. If the value of the
securities placed in a separate account declines, additional cash or securities
will be placed in the account on a daily basis so that the value of the account
will equal the amount of the Portfolio's commitments with respect to such
contracts. As an alternative to maintaining all or part of the separate
account, a Portfolio may purchase a call option permitting the Portfolio to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the Forward Contract price or the Portfolio may
purchase a put option permitting the Portfolio to sell the amount of foreign
currency subject to a forward purchase contract at a price as high or higher
than the Forward Contract price. Unanticipated changes in currency prices may
result in poorer overall performance for a Portfolio than if it had not entered
into such contracts.
The precise matching of the Forward Contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Portfolio to purchase additional foreign currency on the spot (I.E., cash)
market (and bear the expense of such purchase), if the market value of the
security is less than the amount of foreign currency a Portfolio is obligated to
deliver and if a decision is made to sell the security and make delivery of the
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foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency a Portfolio is obligated
to deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward Contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing a Portfolio to sustain
losses on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring a Portfolio to
sell a currency, the Portfolio may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Portfolio will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, a
Portfolio may close out a Forward Contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. A Portfolio
would realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and offsetting contract.
The cost to a Portfolio of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, a Portfolio must evaluate the
credit and performance risk of each particular counterparty under a Forward
Contract.
Although a Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Portfolio may convert foreign currency from time to time,
and investors should be aware of the costs of currency conversion. Foreign
exchange dealers do not charge a fee for conversion, but they do seek to realize
a profit based on the difference between the prices at which they buy and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE
The Trust's custodian, or a securities depository acting for the custodian,
will act as the Portfolio's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Portfolio has
written options or as to other acceptable escrow securities, so that no margin
will be required for such transaction. OCC will release the securities on the
expiration of the option or upon a Portfolio's entering into a closing
transaction.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Portfolio's
option activities may affect its turnover rate and brokerage
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commissions. The exercise by a Portfolio of puts on securities will cause the
sale of related investments, increasing portfolio turnover. Although such
exercise is within a Portfolio's control, holding a put might cause the
Portfolio to sell the related investments for reasons which would not exist in
the absence of the put. A Portfolio will pay a brokerage commission each time
it buys a put or call, sells a call, or buys or sells an underlying investment
in connection with the exercise of a put or call. Such commissions may be
higher than those which would apply to direct purchases or sales of such
underlying investments. Premiums paid for options are small in relation to the
market value of the related investments, and consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in a Portfolio's net asset value being more sensitive to changes in
the value of the underlying investments.
In the future, each Portfolio may employ Hedging Instruments and strategies
that are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with a Portfolio's investment objectives,
legally permissible and adequately disclosed.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS
Each Portfolio must operate within certain restrictions as to its long and
short positions in Futures and options thereon under a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission (the "CFTC") under the
Commodity Exchange Act (the "CEA"), which excludes the Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined in the
CEA) if it complies with the CFTC Rule. In particular, the Portfolio may (i)
purchase and sell Futures and options thereon for bona fide hedging purposes, as
defined under CFTC regulations, without regard to the percentage of the
Portfolio's assets committed to margin and option premiums, and (ii) enter into
non-hedging transactions, provided that the Portfolio may not enter into such
non-hedging transactions if, immediately thereafter, the sum of the amount of
initial margin deposits on the Portfolio's existing Futures positions and option
premiums would exceed 5% of the fair value of its portfolio, after taking into
account unrealized profits and unrealized losses on any such transactions.
Margin deposits may consist of cash or securities acceptable to the broker and
the relevant contract market.
Transactions in options by a Portfolio are subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options were written or purchased on the
same or different exchanges or are held in one or more accounts or through one
or more exchanges or brokers. Thus, the number of options which a Portfolio may
write or hold may be affected by options written or held by other entities,
including other investment companies having the same or an affiliated investment
adviser. Position limits also apply to Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the 1940 Act, when a
Portfolio purchases a Future, the Portfolio will maintain, in a segregated
account or accounts with its custodian bank, cash or liquid securities in an
amount equal to the market value of the securities underlying such Future,
less the margin deposit applicable to it.
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TAX ASPECTS OF HEDGING INSTRUMENTS
Each Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). One of the tests
for such qualification is that less than 30% of its gross income must be derived
from gains realized on the sale of stock, securities and certain financial
instruments held for less than three months. This limitation may limit the
ability of a Portfolio to engage in options transactions and, in general, to
hedge investment risk or close out a hedge position.
POSSIBLE RISK FACTORS IN HEDGING
In addition to the risks discussed in the Prospectus and above, there is a
risk in using short hedging by selling Futures to attempt to protect against
decline in value of the portfolio securities (due to an increase in interest
rates) that the prices of such Futures will correlate imperfectly with the
behavior of the cash (I.E., market value) prices of the Portfolio's securities.
The ordinary spreads between prices in the cash and Futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the Futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close Futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
Futures markets. Second, the liquidity of the Futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the Futures markets could be reduced, thus producing distortion. Third, from
the point-of-view of speculators, the deposit requirements in the Futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the Futures markets may
cause temporary price distortions.
If a Portfolio uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of individual debt
securities (long hedging) by buying Futures and/or calls on such Futures or on
debt securities, it is possible that the market may decline; if the Manager then
determines not to invest in such securities at that time because of concerns as
to possible further market decline or for other reasons, the Portfolio will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the debt securities purchased.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD BONDS. The WMC/fixed
income and Janus/growth components of the Multi-Managed Portfolios may invest
in high yield bonds. These bonds present certain risks which are discussed
below:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience
financial stress that would adversely affect their ability to service
their principal and interest payment obligations, to meet projected
business
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goals, and to obtain additional financing. If the issuer of a bond
defaults on its obligations to pay interest or principal or enters into
bankruptcy proceedings, a Portfolio may incur losses or expenses in seeking
recovery of amounts owed to it. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility
of market prices of high-yield bonds and the Portfolio's net asset value.
PAYMENT EXPECTATIONS - High-yield bonds may contain redemption or
call provisions. If an issuer exercises these provisions in a
declining interest rate market, a Portfolio would have to replace the
security with a lower yielding security, resulting in a decreased
return for investors. Conversely, a high-yield bond's value will
decrease in a rising interest rate market, as will the value of the
Portfolio's assets. If the Portfolio experiences unexpected net
redemptions, this may force it to sell high-yield bonds without regard
to their investment merits, thereby decreasing the asset base upon
which expenses can be spread and possibly reducing the Portfolio's
rate of return.
LIQUIDITY AND VALUATION - There may be little trading in the
secondary market for particular bonds, which may affect adversely a
Portfolio's ability to value accurately or dispose of such bonds.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of
high-yield bonds, especially in a thin market.
SHORT-TERM DEBT SECURITIES. In addition to their primary investments, a
Portfolio may also invest in the following types of money market and fixed-
income securities:
COMMERCIAL BANK OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits), bankers' acceptances (time drafts
drawn on a commercial bank where the bank accepts an irrevocable
obligation to pay at maturity) and documented discount notes
(corporate promissory discount notes accompanied by a commercial bank
guarantee to pay at maturity) representing direct or contingent
obligations of commercial banks with total assets in excess of $1
billion, based on the latest published reports. A Portfolio may also
invest in obligations issued by commercial banks with total assets of
less than $1 billion if the principal amount of these obligations
owned by the Portfolio is fully insured by the Federal Deposit
Insurance Corporation ("FDIC").
SAVINGS ASSOCIATION OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits) issued by mutual savings banks or
savings and loan associations with assets in excess of $1 billion and
whose deposits are insured by the FDIC. A Portfolio may also invest
in obligations issued by mutual savings banks or savings and loan
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associations with total assets of less than $1 billion if the principal
amount of these obligations owned by the Portfolio is fully insured by the
FDIC.
COMMERCIAL PAPER - Short-term notes (up to 9 months) issued by
corporations or governmental bodies. A Portfolio may only purchase
commercial paper judged by the Manager to be of suitable investment
quality. This includes commercial paper that is (a) rated in the two
highest categories by Standard & Poor's Corporation ("Standard &
Poor's") and by Moody's Investors Service, Inc. ("Moody's"), or (b)
other commercial paper deemed on the basis of the issuer's
creditworthiness to be of a quality appropriate for the Portfolio.
(No more than 5% of the Portfolio's assets may be invested in
commercial paper in the second highest rating category; no more than
the greater of 1% or $1 million may be invested in such securities of
any one issuer.) See "Description of Commercial Paper and Bond
Ratings" for a description of the ratings. A Portfolio will not
purchase commercial paper described in (b) above if such paper would
in the aggregate exceed 15% of its total assets after such purchase.
The commercial paper in which a component may invest includes variable
amount master demand notes. Variable amount master demand notes
permit a Portfolio to invest varying amounts at fluctuating rates of
interest pursuant to the agreement in the master note. These are
direct lending obligations between the lender and borrower, they are
generally not traded, and there is no secondary market. Such
instruments are payable with accrued interest in whole or in part on
demand. The amounts of the instruments are subject to daily
fluctuations as the participants increase or decrease the extent of
their participation. Investments in these instruments are limited to
those that have a demand feature enabling the Portfolio
unconditionally to receive the amount invested from the issuer upon
seven or fewer days' notice. In connection with master demand note
arrangements, the Manager, subject to the direction of the Trustees,
monitors on an ongoing basis, the earning power, cash flow and other
liquidity ratios of the borrower, and its ability to pay principal and
interest on demand. The Manager also considers the extent to which
the variable amount master demand notes are backed by bank letters of
credit. These notes generally are not rated by Moody's or Standard &
Poor's and a Portfolio may invest in them only if it is determined
that at the time of investment the notes are of comparable quality to
the other commercial paper in which the Portfolio may invest. Master
demand notes are considered to have a maturity equal to the repayment
notice period unless the Manager has reason to believe that the
borrower could not make timely repayment upon demand.
CORPORATE BONDS AND NOTES - A Portfolio may purchase corporate
obligations that mature or that may be redeemed in one year or less.
These obligations originally may have been issued with maturities in
excess of one year. A Portfolio may invest only in corporate bonds or
notes of issuers having outstanding short-term securities rated in the
top two rating categories by Standard & Poor's and Moody's. See
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"Description of Commercial Paper and Bond Ratings" for description of
investment-grade ratings by Standard & Poor's and Moody's.
ASSET-BACKED SECURITIES. Each Portfolio may invest in asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and automobile
loan receivables, representing the obligations of a number of different parties.
Asset-backed securities present certain risks. For instance, in the case
of credit card receivables, these securities may not have the benefit of any
security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the services to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors to make payments on underlying assets, the securities may
contain elements of credit support which fall into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs in
a timely fashion. Protection against losses resulting from ultimate default
ensures payment through insurance policies or letters of credit obtained by the
issuer or sponsor from third parties. A Portfolio will not pay any additional
or separate fees for credit support. The degree of credit support provided for
each issue is generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquency or loss in
excess of that anticipated or failure of the credit support could adversely
affect the return on an investment in such a security.
U.S. GOVERNMENT SECURITIES. A Portfolio may invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances. A Portfolio may also invest in
securities issued by agencies of the U.S. government or instrumentalities of the
U.S. government. These obligations, including those which are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. Obligations of the Government National
Mortgage Association ("GNMA"), the
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Farmers Home Administration and the Export-Import Bank are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, a component must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States if the
agency or instrumentality does not meet its commitments.
A Portfolio may, in addition to the U.S. government securities noted above,
invest in mortgage-backed securities (including private mortgage-backed
securities), such as GNMA, FNMA or FHLMC certificates (as defined below), which
represent an undivided ownership interest in a pool of mortgages. The mortgages
backing these securities include conventional thirty-year fixed-rate mortgages,
fifteen-year fixed-rate mortgages, graduated payment mortgages and adjustable
rate mortgages. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments, including prepayments, on the mortgages underlying the certificate,
net of certain fees.
The yield on mortgage-backed securities is based on the average expected
life of the underlying pool of mortgage loans. The actual life of any
particular pool will be shortened by any unscheduled or early payments of
principal and interest. Principal prepayments generally result from the sale of
the underlying property or the refinancing or foreclosure of underlying
mortgages. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is not possible to
predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Portfolio to differ from the yield calculated on the
basis of the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as do the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Portfolio receives may
occur at higher or lower rates than the original investment, thus affecting the
yield of the Portfolio. Monthly interest payments received by the Portfolio
have a compounding effect which may increase the yield to shareholders more than
debt obligations that pay interest semi-annually. Because of those factors,
mortgage-backed securities may be less effective than U.S. Treasury bonds of
similar maturity at maintaining yields during periods of declining interest
rates. Accelerated prepayments adversely affect yields for pass-through
securities purchased at a premium (I.E., at a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-through securities purchased at a discount. A
Portfolio may purchase mortgage-backed securities at a premium or at a discount.
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<PAGE>
The following is a description of GNMA, FNMA and FHLMC certificates, the
most widely available mortgage-backed securities:
GNMA CERTIFICATES. GNMA certificates ("GNMA Certificates") are mortgage-
backed securities which evidence an undivided interest in a pool or pools of
mortgages. GNMA Certificates that a Portfolio may purchase are the modified
pass-through type, which entitle the holder to receive timely payment of all
interest and principal payments due on the mortgage pool, net of fees paid to
the issuer and GNMA, regardless of whether or not the mortgagor actually makes
the payment.
GNMA guarantees the timely payment of principal and interest on securities
backed by a pool of mortgages insured by the Federal Housing Administration
("FHA") or the Farmers' Home Administration ("FMHA"), or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is authorized by the
National Housing Act and is backed by the full faith and credit of the United
States. The GNMA is also empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Portfolio
has purchased the certificates at a premium in the secondary market.
FHLMC CERTIFICATES. The Federal Home Loan Mortgage Corporation ("FHLMC")
issues two types of mortgage pass-through securities: mortgage participation
certificates ("PCS") and guaranteed mortgage certificates ("GMCs")
(collectively, "FHLMC Certificates"). PCS resemble GNMA Certificates in that
each PC represents a pro rata share of all interest and principal payments made
and owed on the underlying pool. The FHLMC guarantees timely monthly payment of
interest (and, under certain circumstances, principal) of PCS and the ultimate
payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years. The FHLMC guarantee is not backed by the full faith
and credit of the U.S. Government.
FNMA CERTIFICATES. The Federal National Mortgage Association ("FNMA")
issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates represent a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely payment
of interest and principal on FNMA Certificates. The FNMA guarantee is not
backed by the full faith and credit of the U.S. Government.
Conventional mortgage pass-through securities ("Conventional Mortgage Pass-
Throughs") represent participation interests in pools of mortgage loans that are
issued by trusts formed by
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originators of the institutional investors in mortgage loans (or represent
custodial arrangements administered by such institutions). These originators
and institutions include commercial banks, savings and loans associations,
credit unions, savings banks, insurance companies, investment banks or special
purpose subsidiaries of the foregoing. For federal income tax purposes, such
trusts are generally treated as grantor trusts or REMICs and, in either case,
are generally not subject to any significant amount of federal income tax at the
entity level.
The mortgage pools underlying Conventional Mortgage Pass-Throughs consist
of conventional mortgage loans evidenced by promissory notes secured by first
mortgages or first deeds of trust or other similar security instruments creating
a first lien on residential or mixed residential and commercial properties.
Conventional Mortgage Pass-Throughs (whether fixed or adjustable rate) 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 amount paid to any
guarantor, administrator and/or servicer of the underlying mortgage loans. A
trust fund with respect to which a REMIC election has been made may include
regular interests in other REMICs which in turn will ultimately evidence
interests in mortgage loans.
Conventional mortgage pools generally offer a higher rate of interest than
government and government-related pools because of the absence of any direct or
indirect government or agency payment guarantees. However, timely payment of
interest and principal of mortgage loans in these pools may be supported by
various forms of insurance or guarantees, including individual loans, title,
pool and hazard insurance and letters of credit. The insurance and guarantees
may be issued by private insurers and mortgage poolers. Although the market for
such securities is becoming increasingly liquid, mortgage-related securities
issued by private organizations may not be readily marketable.
Another type of mortgage-backed security in which the
SunAmerica/balanced and WMC/fixed income components of the Multi-Managed
Portfolios may invest is a collateralized mortgage obligation ("CMO"). CMOs
are fully collateralized bonds which are the general obligations of the
issuer thereof (e.g., the U.S. government, a U.S. government instrumentality,
or a private issuer). Such bonds generally are secured by an assignment to a
trustee (under the indenture pursuant to which the bonds are issued) of
collateral consisting of a pool of mortgages. Payments with respect to the
underlying mortgages generally are made to the Trustee under the indenture.
Payments of principal and interest on the underlying mortgages are not passed
through to the holders of the CMOs as such (i.e., the character of payments
of principal and interest is not passed through, and therefore payments to
holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of
capital, respectively, to such holders), but such payments are dedicated to
payment of interest on and repayment of principal of the CMOs.
Principal and interest on the underlying mortgage assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the mortgage assets generally are applied to the
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classes of CMOs in the order of their respective final distribution dates.
Thus, no payment of principal will be made on any class of sequential pay CMOs
until all other classes having an earlier final distribution date have been paid
in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of CMOs may be issued in the parallel pay or sequential pay
structures. These securities include accrual certificates (also known as "Z-
Bonds"), which only accrue interest at a specified rate until all other
certificates having an earlier final distribution date have been retired and are
converted thereafter to an interest-paying security, and planned amortization
class ("PAC") certificates, which are parallel pay CMOs which generally require
that specified amounts of principal be applied on each payment date to one or
more classes of CMOs (the "PAC Certificates"), even though all other principal
payments and prepayments of the mortgage assets are then required to be applied
to one or more other classes of the certificates. The scheduled principal
payments for the PAC Certificates generally have the highest priority on each
payment date after interest due has been paid to all classes entitled to receive
interest currently. Shortfalls, if any, are added to the amount payable on the
next payment date. The PAC Certificate payment schedule is taken into account
in calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created to absorb
most of the volatility in the underlying mortgage assets. These tranches tend
to have market prices and yields which are much more volatile than the PAC
classes.
The SunAmerica/balanced and WMC/fixed income components of the
Multi-Managed Portfolios may also invest in stripped mortgage-backed
securities. Stripped mortgage-backed securities are often structured with
two classes that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. Stripped mortgage-backed
securities have greater market volatility than other types of U.S. Government
securities in which a component invests. A common type of stripped
mortgage-backed security has one class receiving some of the interest and all
or most of the principal (the "principal only" class) from the mortgage pool,
while the other class will receive all or most of the interest (the "interest
only" class). The yield to maturity on an interest only class is extremely
sensitive not only to changes in prevailing interest rates, but also to the
rate of principal payments, including principal prepayments, on the
underlying pool of mortgage assets, and a rapid rate of principal payment may
have a material adverse effect on a Portfolio's yield. While interest-only
and principal-only securities are generally regarded as being illiquid, such
securities may be deemed to be liquid if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in
the calculation of a Portfolio's net asset value per share. Only government
interest only and principal only securities backed by fixed-rate mortgages
and determined to be liquid under guidelines and standards established by the
Trustees may be considered liquid securities not subject to a Portfolio's
limitation on investments in illiquid securities.
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INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the Prospectus,
the Portfolios may invest in the securities of small companies having market
capitalizations under $1 billion. These securities may have a limited trading
market, which may adversely affect their disposition and can result in their
being priced lower than might otherwise be the case. If other investment
companies and investors who invest in such issuers trade the same securities
when a Portfolio attempts to dispose of its holdings, the Portfolio may receive
lower prices than might otherwise be obtained.
Companies with market capitalization of $1 billion to $5 billion may also
suffer more significant losses as well as realize more substantial growth than
larger, more established growth than larger, more established issuers. Thus,
investments in such companies tend to be more volatile and somewhat speculative.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Portfolio may lend portfolio securities in amounts up to 33%
of total assets to brokers, dealers and other financial institutions, provided,
that such loans are callable at any time by the Portfolio and are at all times
secured by cash or equivalent collateral in an amount equal to at least 100% of
the current value, determined daily, of the loaned securities plus accrued
interest. In lending its portfolio securities, a Portfolio receives income
while retaining the securities' potential for capital appreciation. The
advantage of such loans is that a Portfolio continues to receive the interest
and dividends on the loaned securities while at the same time earning interest
on the collateral, which will be invested in short-term obligations. A loan may
be terminated by the borrower on one business day's notice or by a Portfolio at
any time. If the borrower fails to maintain the requisite amount of collateral,
the loan automatically terminates, and the Portfolio could use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Manager to be creditworthy. On termination of the loan, the borrower is
required to return the securities to a component; and any gain or loss in the
market price of the loaned security during the loan would inure to the
Portfolio. Each Portfolio will pay reasonable finders', administrative and
custodial fees in connection with a loan of its securities or may share the
interest earned on collateral with the borrower. Loans of portfolio securities
will only be made to firms deemed by the Manager to be creditworthy.
Since voting or consent rights which accompany loaned securities pass to
the borrower, each Portfolio will follow the policy of calling the loan, in
whole or in part as may be appropriate, to permit the exercise of such rights if
the matters involved would have a material effect on the Portfolio's investment
in the securities which are the subject of the loan.
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DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER RATINGS. Moody's employs the designations "Prime-1,"
"Prime-2" and "Prime-3" to indicate commercial paper having the highest capacity
for timely repayment. Issuers rated Prime-1 have a superior capacity for
repayment of short-term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. Issues rated
Prime-2 have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
Issuers rated Prime-3 have an acceptable capacity for repayment of short-
term promissory obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earning and profitability
may result in changes in level of debt protection measurements and the
requirement for relatively high financial leverage. Adequate alternate
liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
B-30
<PAGE>
Standard and Poor's ratings of commercial paper are graded into four
categories ranging from A for the highest quality obligations to D for the
lowest. A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 -
This designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation. A-2 - Capacity for timely payments on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated A-1. B - Issues in this category are regarded as having only
adequate capacity for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities. C - This rating is assigned to
short-term debt obligations with a doubtful capacity for payment. D - The
rating indicates that the issues is either in default or is expected to be in
default upon maturity.
Duff & Phelps, Inc. ("Duff & Phelps") commercial paper ratings are
consistent with the short-term rating criteria utilized by money market
participants. Duff & Phelps commercial paper ratings refine the traditional 1
category. The majority of commercial issuers carry the higher short-term rating
yet significant quality differences within that tier do exist. As a
consequence, Duff & Phelps has incorporated gradations of 1+ and 1- to assist
investors in recognizing those differences.
Duff 1+ - Highest certainty of time repayment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury short-
term obligations. Duff 1 - Very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor. Duff 1- - High certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 - Good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small. Duff 3 - Satisfactory
liquidity and other protection factors, qualify issue as investment grade. Risk
factors are larger and subject to more variation. Nevertheless, timely payment
is expected. Duff 4 - Speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation. Duff 5 -
Default.
The short-term ratings of Fitch Investor Services, Inc. ("Fitch") apply to
debt obligations that are payable on demand or have original maturities of
generally up to three years, including commercial paper, certificates of
deposit, medium-term notes, and municipal and investment notes. The short-term
rating places greater emphasis than a long-term rating on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner. Fitch
short-term ratings are as follows: F-1+ Exceptionally Strong Credit Quality -
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment. F-1 Very Strong Credit Quality -Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+. F-2 Good Credit Quality - Issues assigned this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as good as it is for issues assigned F-1+ and F-1
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ratings. F-3 Fair Credit Quality - Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade. F-5 Weak Credit Quality -Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions. D Default - Issues assigned this rating are in actual or
imminent payment default. LOC - The symbol LOC indicates that the rating is
based on a letter of credit issued by a commercial bank.
Thomson BankWatch, Inc. ("BankWatch") short-term ratings apply only to
unsecured instruments that have a maturity of one year or less. These short-
term ratings specifically assess the likelihood of an untimely payment of
principal and interest. TBW-1 is the highest category, which indicates a very
high degree of likelihood that principal and interest will be paid on a timely
basis. TBW-2 is the second highest category and, while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
CORPORATE DEBT SECURITIES. Moody's rates the long-term debt securities
issued by various entities from "Aaa" to "C." Aaa - Best quality. These
securities carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a larger, 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
more unlikely to impair the fundamentally strong position of these issues. Aa -
High quality by all standards. They are rated lower than the best bond because
margins of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat greater. A - Upper medium
grade obligations. These bonds possess many favorable investment attributes.
Factors giving security to principal and interest are considered adequate, but
elements may be present that suggest a susceptibility to impairment sometime in
the future. Baa - Medium grade obligations. 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 - Have speculative elements; future
cannot be considered as well assured. 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. Bonds in this class are characterized by
uncertainty of position. B - Generally lack characteristics of the 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. Caa -
Of poor standing. Issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca - Speculative in a high
degree; often in default or have other marked shortcomings. C - Lowest rated
class of bonds; can be regarded as having extremely poor prospects of ever
attaining any real investment standings.
Moody's may apply numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks
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in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of the generic rating category.
Standard & Poor's rates the long-term securities debt of various entities
in categories ranging from "AAA" to "D" according to quality. AAA - Highest
rating. Capacity to pay interest and repay principal is extremely strong. AA
- - High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree. A -
Have a strong capacity to pay interest and repay principal, although they are
somewhat more susceptible to the adverse effects of change in circumstances and
economic conditions than debt in higher rated categories. BBB - Regarded as
having adequate capacity to pay interest and repay principal. These bonds
normally exhibit adequate protection parameters, but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal than for debt in higher rated categories. BB, B,
CCC, CC, C - Regarded, on balance, as predominately speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. BB indicated the lowest degree of speculation and C the highest
degree of speculative. While this debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. C1 - Reserved for income bonds on which
no interest is being paid. D - In default and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or minus (-): The ratings of AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within these ratings
categories.
BankWatch rates the long-term debt securities issued by various entities
either AAA or AA. AAA is the highest category, which indicates the ability to
repay principal and interest on a timely basis is very high. AA is the second
highest category, which indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk versus issues rated in
the highest category. Ratings in the long-term debt categories may include a
plus (+) or minus (-) designation which indicates where within the respective
category the issue is placed.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated for each Portfolio by dividing
(a) the lesser of purchases or sales of portfolio securities for the fiscal year
by (b) the monthly average of the value of portfolio securities owned during the
fiscal year. For purposes of this calculation, securities which at the time of
purchase had a remaining maturity of one year or less are excluded from the
numerator and the denominator. Transactions in Futures or the exercise of calls
written by a Portfolio may cause the Portfolio to sell portfolio securities,
thus increasing its turnover rate. The exercise of puts also may cause a sale
of securities and increase turnover; although such exercise is within a
Portfolio's control, holding a protective put might cause the Portfolio to sell
the underlying securities for reasons which would not exist in the absence of
the put. A Portfolio will pay a brokerage commission each time it buys of sells
a security in connection with the exercise of a put or call. Some commissions
may be higher than those which would apply to direct purchases or sales of
portfolio securities.
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<PAGE>
The quarterly rebalancing of the Portfolios as described at page __ of
the Contract prospectus may also result in relatively higher portfolio
turnover. Because each particular component (each, a "Managed Component" or
"component") of the portfolio of each Multi-Managed Portfolio will be managed
independently of each other, it is possible that the same security may be
purchased and sold on the same day by two separate Managed Components of the
same Multi-Managed Portfolio, resulting in higher brokerage commissions for
the Portfolio.
High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by a
Portfolio. High portfolio turnover may also involve a possible increase in
short-term capital gains or losses.
INVESTMENT RESTRICTIONS
The Trust has adopted for each Portfolio certain investment restrictions
that are fundamental policies and cannot be changed without the approval of the
holders of a majority of that Portfolio's outstanding shares. Such majority is
defined as the vote of the lesser of (i) 67% or more of the outstanding shares
present at a meeting, if the holders of more than 50% of the outstanding shares
are present in person or by proxy or (ii) more than 50% of the outstanding
shares. All percentage limitations expressed in the following investment
restrictions are measured immediately after the relevant transaction is made.
Each Portfolio may not:
1. With respect to the Stock Portfolio, invest more than 5% of the value
of its total assets in the securities of any one issuer, provided that this
limitation shall apply only to 75% of the value of the Stock Portfolio's total
assets and, provided further, that the limitation shall not apply to obligations
issued or guaranteed by the government of the United States or of any of its
agencies or instrumentalities.
2. With respect to the Stock Portfolio, as to 75% of its total assets,
purchase more than 10% of the outstanding voting securities of any one issuer.
3. Invest more than 25% of the Portfolio's total assets in the securities
of issuers in the same industry. Obligations of the U.S. Government, its
agencies and instrumentalities are not subject to this 25% limitation on
industry concentration.
4. Invest in real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein); provided that a Portfolio may hold or
sell real estate acquired as a result of the ownership of securities.
5. Purchase or sell commodities or commodity contracts, except to the
extent that the Portfolio may do so in accordance with applicable law and the
Portfolio's Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without registering as a
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commodity pool operator under the Commodity Exchange Act. Any Portfolio may
engage in transactions in put and call options on securities, indices and
currencies, forward and futures contracts on securities, indices and currencies,
put and call options on such futures contracts, forward commitment transactions,
forward foreign currency exchange contracts, interest rate, mortgage and
currency swaps and interest rate floors and caps and may purchase hybrid
instruments.
6. Make loans to others except for (a) the purchase of debt securities;
(b) entering into repurchase agreements; and (c) the lending of its portfolio
securities.
7. Borrow money, except that (i) each Portfolio may borrow from banks
in amounts up to 33 1/3% of its total assets for temporary or emergency
purposes, (ii) each of the Multi-Managed Growth and Moderate Growth
Portfolios, through its SunAmerica/aggressive growth component, may borrow
for investment purposes to the maximum intent permissible under the 1940 Act
(with any percentage limitation calculated only with respect to the total
assets allocated to the SunAmerica/aggressive growth component of such
Multi-Managed Portfolio), and (iii) a Portfolio may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities. A Portfolio will not purchase additional securities
while the value of its borrowings exceeds 5% of its total assets. This
policy shall not prohibit a Portfolio's engaging in reverse repurchase
agreements, dollar rolls and similar investment strategies described in the
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
8. Issue senior securities as defined in the 1940 Act, except that each
Portfolio may enter into repurchase agreements, reverse repurchase agreements,
dollar rolls, lend its portfolio securities and borrow money from banks, as
described above, and engage in similar investment strategies described in the
Prospectus and Statement of Additional Information, as they may be amended from
time to time.
9. Engage in underwriting of securities issued by others, except to the
extent that the Portfolio may be deemed to be an underwriter in connection with
the disposition of portfolio securities of the Portfolio.
The following additional restrictions are not fundamental policies and may
be changed by the Trustees without a vote of shareholders. Each Portfolio may
not:
10. Invest in companies for the purpose of exercising control or
management.
11. Purchase securities on margin.
12. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and, to the extent related to the
segregation of assets in connection with the writing of covered put and call
options and the purchase of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts and
options on futures contracts. In addition,
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a Portfolio may pledge assets in reverse repurchase agreements, dollar rolls and
similar investment strategies described in the Prospectus and Statement of
Additional Information, as they may be amended from time to time.
13. Sell securities short, including short sales "against the box" (i.e.,
where a Portfolio contemporaneously owns, or has the right to acquire at no
additional cost, securities identical to those sold short) if as a result more
than 25% of its net assets would be subject to such short sales.
14. Invest in securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
15. Invest in interests in oil, gas or other mineral exploration or
development programs, or mineral leases, although a Portfolio may invest in the
debt or equity securities of companies which invest in or sponsor such programs.
16. Enter into any repurchase agreement maturing in more than seven days
or investing in any other illiquid security if, as a result, more than 15% of a
Portfolio's net assets would be so invested. Restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act that have a readily
available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and sold
to "qualified institutional buyers" as defined in Rule 144A, which the Manager
has determined to be liquid pursuant to guidelines established by the Trustees,
will not be considered illiquid for purposes of this 15% limitation on illiquid
securities.
TRUST OFFICERS AND TRUSTEES
The trustees and executive officers of the Trust, their ages and their
principal occupations for the past five years are set forth below. Each Trustee
also serves as a trustee of Anchor Pathway Fund and SunAmerica Series Trust.
Unless otherwise noted, the address of each executive officer and trustee is 1
SunAmerica Center, Century City, Los Angeles, California 90067-6022.
Name, Age and Position(s)
Held with the Trust Principal Occupation(s) During Past Five Years
------------------- ----------------------------------------------
RICHARDS D. BARGER, 66, Senior Partner, Law Firm of Barger & Wolen;
Trustee former Director, Anchor National Life Insurance
Company ("Anchor National").
FRANK L. ELLSWORTH, 51, President, the Independent Colleges of Southern
Trustee California (1991-present; President, Pitzer
College; President and Professor of Political
Studies, Pitzer College (1979-1991).
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GORDON F. HAMPTON, 82, Senior Partner, Law Firm of Sheppard, Mullin,
Trustee Richter & Hampton.
NORMAN J. METCALFE, 52, Vice Chairman and Chief Financial Officer, The
Trustee* Irvine Company (March 1993 to Present);
Executive Vice President (1986-1992) and
Director (1984-1993), SunAmerica Inc.;
President, SunAmerica Investments, Inc. (joined
SunAmerica Inc. in 1970); Executive Vice
President and Director, Anchor National.
JAMES K. HUNT, 43, President, SunAmerica Corporate Finance (since
Trustee, Chairman and January 1994); Executive Vice President,
President* SunAmerica Investments, Inc. (1993 to present);
Senior Vice President, SunAmerica Investments
Inc. (1990-1993); Trustee, Chairman and
President, Anchor Pathway Fund and SunAmerica
Series Trust.
SCOTT L. ROBINSON, 48, Senior Vice President and Controller,
Senior Vice President, SunAmerica Inc. (since 1991); Senior Vice
Treasurer and Controller President of Anchor National (since 1988). Vice
President and Controller, SunAmerica Inc.
(1986-1991); Senior Vice President, Treasurer
and Controller, Anchor Pathway Fund and
SunAmerica Series Trust; Joined SunAmerica Inc.
in 1978.
SUSAN L. HARRIS, 37, Senior Vice President, Secretary (since 1995)
Vice President, Counsel and and General Counsel (since December 1994),
Secretary SunAmerica Inc.; Senior Vice President and
Secretary, Anchor National (since 1990); Vice
President, Counsel and Secretary, Anchor
Pathway Fund and SunAmerica Series Trust;
Joined SunAmerica Inc. in 1985.
* A trustee who is an "interested person" within the meaning of the 1940 Act.
The Trust pays no salaries or compensation to any of its officers, all of
whom are officers or employees of The Life Company or its affiliates. An annual
fee of $_____, plus $___ for each meeting attended, and expenses are paid to
each trustee who is not an officer or employee of Anchor National Life Insurance
Company or its affiliates for attendance at meetings of the Board of Trustees.
The following table sets forth information summarizing the compensation of
each of the Trustees for his services as Trustee. The compensation received from
the Trust is estimated for the
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fiscal year ending February 28, 1997, and the compensation received from other
mutual funds in the same fund complex as the Trust is based on the fiscal year
ended November 30, 1995.
COMPENSATION TABLE
PENSION OR
AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED FROM REGISTRANT
FROM AS PART OF FUND AND FUND COMPLEX
TRUSTEE REGISTRANT EXPENSES PAID TO TRUSTEES*
- --------------------------------------------------------------------------------
Richards D. Barger $ - $
Frank L. Ellsworth $ - $
Gordon F. Hampton $ - $
Norman J. Metcalfe $ - $
* In addition to the Trust, the Trustees served on the boards of __ other funds
in the same mutual fund complex as the Trust.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Trust, on behalf of each Portfolio, entered into an Investment Advisory
and Management Agreement with SAAMCo to handle the Trust's day-to-day affairs.
The Investment Advisory and Management Agreement ("Management Agreement")
provides that it will continue in effect until ____________, 1998, unless
terminated, and may be renewed from year to year as to each Portfolio for so
long as such renewal is specifically approved at least annually by (i) the Board
of Trustees, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of each relevant Portfolio, and (ii) the vote of a
majority of Trustees who are not parties to the Management Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person, at a meeting called for the purpose of voting on such approval. The
Management Agreement also provides that it may be terminated by either party
without penalty upon 60 days' written notice to the other party. The Management
Agreement may be terminated with respect to a Portfolio at any time, without
penalty, by the Trustees or by the holders of a majority of the respective
Portfolio's outstanding voting securities on sixty (60) days written notice to
the Adviser, or by the Adviser upon the approval by the Trust of another
investment advisory agreement or on six months' written notice, whichever is
earlier. The Agreement provides for automatic termination with respect to each
Portfolio in the event of its assignment (as defined in the 1940 Act).
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As compensation for its services, the Adviser receives from the Trust a
fee, accrued daily and payable monthly, based on the net assets of each
Portfolio at the rates set forth in the Prospectus. This fee will be reduced to
the extent necessary to comply with any applicable state expense limitations.
PERSONAL TRADING. The Trust and the Adviser have adopted a written Code of
Ethics (the "Code") which prescribes general rules of conduct and sets forth
guidelines with respect to personal securities trading by "Access Persons"
thereof. An Access Person as defined in the Code is an individual who is a
trustee, director, officer, general partner or advisory person of the Trust or
the Adviser. Among the guidelines on personal securities trading include: (i)
securities being considered for purchase or sale, or purchased or sold, by any
Investment Company advised by the Adviser, (ii) Initial Public Offerings, (iii)
private placements, (iv) blackout periods, (v) short-term trading profits, (vi)
gifts, and (vii) services as a Trustee. These guidelines are substantially
similar to those contained in the Report of the Advisory Group on Personal
Investing issued by the Investment Company Institute's Advisory Panel. The
Adviser reports to the Board of Trustees on a quarterly basis, as to whether
there were any violations of the Code by Access Persons of the Trust or the
Adviser during the quarter.
The Subadvisers have each adopted a written Code of Ethics, and have
represented that the provisions of such Code of Ethics are substantially similar
to those in the Code. Further, the Subadvisers report to the Adviser on a
quarterly basis, as to whether there were any Code of Ethics violations by
employees thereof who may be deemed Access Persons of the Trust. In turn, the
Adviser reports to the Board of Trustees as to whether there were any violations
of the Code by Access Persons of the Trust or the Adviser.
SUBADVISORY AGREEMENTS
Janus Capital Corporation ("Janus"), T. Rowe Price Associates, Inc. ("T.
Rowe Price"), and Wellington Management Company ("WMC") act as Subadvisers to
certain of the Portfolios pursuant to various Subadvisory Agreements with
SAAMCo. Under the respective Subadvisory Agreements, T. Rowe Price manages the
investment and reinvestment of the Stock Portfolio, and Janus and WMC each
manage the investment and reinvestment of the component of the Multi-Managed
Portfolios for which they are responsible. Each of the Subadvisers is
independent of SAAMCo and discharges its responsibilities subject to the
policies of the Trustees and the oversight of supervision of SAAMCo, which pays
the Subadvisers' fees.
The Adviser pays each Subadviser a monthly fee at the annual rates set
forth in the Prospectus.
The Subadvisory Agreements will continue in effect until _______, 1998,
unless terminated, and may be renewed from year to year thereafter, so long as
continuance is specifically approved at least annually in accordance with the
requirements of the 1940 Act. The Subadvisory Agreements provide that they will
terminate in the event of an assignment (as defined in the 1940 Act) or upon
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termination of the Management Agreement. The Subadvisory Agreements may be
terminated at any time, without penalty, by the Portfolio or the Trust, by the
Trustees, by the holders of a majority of the respective Portfolio's outstanding
voting securities, by the Adviser, on not less than thirty (30) nor more than
sixty (60) days' written notice to the Subadviser, or by the Subadviser, on not
less than ninety (90) days' written notice to the Adviser and the Trust;
provided, that the Subadviser may not terminate the Subadvisory Agreement unless
another subadvisory agreement has been approved by the Trust in accordance with
the 1940 Act, or after six (6) months' written notice, whichever is earlier;
provided, further, that each may terminate its respective Subadvisory Agreement
on sixty (60) days' written notice in the event of a breach of such agreement by
the Adviser.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
FEDERAL TAXES - Each Portfolio of the Trust intends to meet all the
requirements and to elect the tax status of a "regulated investment company"
under the provisions of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, a Portfolio will not be subject to federal
income tax on that portion of any income and net realized capital gains which it
distributes to its shareholders. Each Portfolio intends to distribute all
income and net realized capital gains to the Variable Separate Account. If a
Portfolio should fail to meet the requirements of Subchapter M, it would be
subject to income tax on its income and capital gains.
PRICE OF SHARES
Shares of the Trust are currently offered only to the Variable Separate
Account. The price paid for shares, the offering price, is the net asset value
per share calculated once daily at the close of regular trading (currently 4:00
p.m., New York time) each day the New York Stock Exchange is open. The New York
Stock Exchange is currently closed on weekends and on the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas Day.
Stocks and convertible bonds and debentures traded on the New York Stock
Exchange are valued at the last sale price on such exchange on the day of
valuation, or if there is no sale on the day of valuation, at the last-reported
bid price. Non-convertible bonds and debentures and other long-term debt
securities are normally valued at prices obtained for the day of valuation from
a bond pricing service, when such prices are available. In circumstances in
which the Manager deems it appropriate to do so, an over-the-counter or exchange
quotation (at the mean of representative quoted bid or asked prices for such
securities or, if such prices are not available, at prices for securities of
comparable maturity, quality and type) may be used. Securities traded primarily
on securities exchanges outside the United States are valued at the last sale
price on such exchanges on the day of valuation, or if there is no sale on the
day of valuation, at the last-reported bid price. U.S. Treasury bills, and
other obligations issued by the U.S. Government, its agencies or
instrumentalities, certificates of deposit issued by banks, corporate short-term
notes and other short-term investments with original or remaining maturities in
excess of 60 days are valued at the mean of representative
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quoted bid and asked prices for such securities as provided by a pricing service
or, if such prices are not available, for securities of comparable maturity,
quality and type. Short-term securities with 60 days or less to maturity are
amortized to maturity based on their cost to the Trust if acquired within 60
days of maturity or, if already held by the Trust on the 60th day, are amortized
to maturity based on the value determined on the 61st day. Options on
currencies purchased by a Portfolio are valued at their last bid price in the
case of listed options or at the average of the last bid prices obtained from
dealers in the case of OTC options. Futures contracts involving foreign
currencies traded on exchanges are valued at their last sale or settlement price
as of the close of such exchanges or if no sales are reported, at the mean
between the last reported bid and asked prices. Other securities are valued on
the basis of last sale or bid price (if a last sale price is not available) in
what is, in the opinion of the Manager, the broadest and most representative
market, that may be either a securities exchange or the over-the-counter market.
Where quotations are not readily available, securities are valued at fair value
as determined in good faith in accordance with procedures adopted by the Board
of Trustees. The fair value of all other assets is added to the value of
securities to arrive at the respective Portfolio's total assets.
A Portfolio's liabilities, including proper accruals of expense items, are
deducted from total assets.
The net asset value of the respective Portfolio is divided by the total
number of shares outstanding to arrive at the net asset value per share.
EXECUTION OF PORTFOLIO TRANSACTIONS
It is the policy of the Trust, in effecting transactions in portfolio
securities, to seek the best execution at the most favorable prices. The
determination of what may constitute best execution involves a number of
considerations, including the economic result to the Trust (involving both price
paid or received and any commissions and other costs), the efficiency with which
the transaction is effected where a large block is involved, the availability of
the broker to stand ready to execute potentially difficult transactions and the
financial strength and stability of the broker. Such considerations are
judgmental and are considered in determining the overall reasonableness of
brokerage commissions paid.
A factor in the selection of brokers is the receipt of research services --
analyses and reports concerning issuers, industries, securities, economic
factors and trends -- and other statistical and factual information. Research
and other statistical and factual information provided by brokers is considered
to be in addition to and not in lieu of services required to be performed by the
Manager.
The extent to which commissions may reflect the value of research services
cannot be presently determined. To the extent that research services of value
are provided by broker-dealers with or through whom the Manager places the
Trust's portfolio transactions, the Manager may be relieved of expenses it might
otherwise bear. Research services furnished by broker-dealers could be useful
and of value to the Manager in serving other clients as well as the Trust and
research services
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obtained by the Manager as a result of the placement of portfolio brokerage of
other clients could be useful and of value in serving the Trust.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Trust is subject to an exemptive order
from the Securities and Exchange Commission (the "SEC"), permitting the Trust to
deal with securities dealers (that may be deemed to be affiliated persons of
affiliated persons of the Trust solely because of any subadvisory relationship)
as a principal in purchases and sales of certain securities.
Subject to the above considerations, a Manager may use broker-dealer
affiliates of a Manager, as a broker for any Portfolio. In order for such
broker-dealer to effect any portfolio transactions for a Portfolio, the
commissions, fees or other remuneration received by the broker-dealer must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. This standard would allow such broker-dealer to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. Furthermore, the Trustees of
the Trust, including a majority of the non-interested Trustees, have adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to such broker-dealers are consistent with the
foregoing standard. These types of brokerage transactions are also subject to
such fiduciary standards as may be imposed upon the broker-dealers by applicable
law.
The policy of the Trust with respect to brokerage is reviewed by the Board
of Trustees from time-to-time. Because of the possibility of further regulatory
developments affecting the securities exchanges and brokerage practices
generally, the foregoing practices may be modified.
A Manager and its respective affiliates may manage, or have proprietary
interests in, accounts with similar or dissimilar or the same investment
objectives as one or more Portfolios of the Trust. Such account may or may not
be in competition with a Portfolio for investments. Investment decisions for
such accounts are based on criteria relevant to such accounts; portfolio
decisions and results of the Portfolio's investments may differ from those of
such other accounts. There is no obligation to make available for use in
managing the Portfolio any information or strategies used or developed in
managing such accounts. In addition, when two or more accounts seek to purchase
or sell the same assets, the assets actually purchased or sold may be allocated
among accounts on a good faith equitable basis at the discretion of the
account's adviser. In some cases, this system may adversely affect the price or
size of the position obtainable for a Portfolio.
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If determined by a Manager to be beneficial to the interests of the Trust,
partners and/or employees of the Manager may serve on investment advisory
committees, which will consult with the subadviser regarding investment
objectives and strategies for the Trust. In connection with serving on such a
committee, such persons may receive information regarding a Portfolio's proposed
investment activities which is not generally available to unaffiliated market
participants, and there will be no obligation on the part of such persons to
make available for use in managing the Portfolio any information or strategies
known to them or developed in connection with their other activities.
It is possible that a Portfolio's holdings may include securities of
entities for which a Manager or its affiliate performs investment banking
services as well as securities of entities in which a subadviser or its
affiliate makes a market. From time to time, such activities may limit a
Portfolio's flexibility in purchases and sales of securities. When a Subadviser
or its affiliate is engaged in an underwriting or other distribution of
securities of an entity, the Subadviser may be prohibited from purchasing or
recommending the purchase of certain securities of that entity for the
Portfolio.
Because each Managed Component of a Multi-Managed Portfolio will be
managed independently of each other, it is possible that the same security
may be purchased and sold on the same day by two separate Managed Components,
resulting in higher brokerage commissions for the Portfolio.
GENERAL INFORMATION
CUSTODIAN - State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110, serves as the Trust's custodian.
In this capacity, State Street maintains the portfolio securities held by the
Trust, administers the purchase and sale of portfolio securities, and performs
certain other duties. State Street also serves as transfer agent and dividend
disbursing agent for the Trust.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL - Price Waterhouse LLP, 1177
Avenue of the Americas, New York, New York 10036, has been selected as the
Trust's independent accountants. Price Waterhouse LLP performs an annual audit
of the Trust's financial statements and provides tax consulting, tax return
preparation and accounting services relating to filings with the SEC. The firms
of Shereff, Friedman, Hoffman and Goodman LLP, 919 Third Avenue, New York, NY
10022, and Blazzard, Grodd & Hasenauer, P.C., Suite 213, Oceanwalk Mall, 101
North Ocean Drive, Hollywood, Florida 33019, have been selected to provide legal
counsel to the Trust.
REPORTS TO SHAREHOLDERS - Persons having a beneficial interest in the Trust
are provided at least semi-annually with reports showing the investments of the
Portfolios, financial statements and other information.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. The risk of a shareholder incurring
any financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of the Trust and
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provides that notice of the disclaimer must be given in each agreement,
obligation or instrument entered into or executed by the Trust or Trustees. The
Declaration of Trust provides for indemnification of any shareholder held
personally liable for the obligations of the Trust and also provides for the
Trust to reimburse the shareholder for all legal and other expenses reasonably
incurred in connection with any such claim or liability.
Under the Declaration of Trust, the trustees or officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
provides indemnification to its trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
REGISTRATION STATEMENT - A registration statement has been filed with the
Securities and Exchange Commission under the Securities Act of 1933 and the
1940 Act. The Prospectus and this Statement of Additional Information do not
contain all information set forth in the registration statement, its amendments
and exhibits thereto, that the Trust has filed with the Securities and Exchange
Commission, Washington, D.C., to all of which reference is hereby made.
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
Contained in Part A, the Prospectus:
None
Contained in Part B, the Statement of Additional Information:
None
(b) EXHIBITS.
(1) Declaration of Trust.
(2) By-Laws.
(3) Voting Trust Agreement. Inapplicable.
(4) Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
(5)(a) Investment Advisory and Management Agreement between Registrant
and SunAmerica Asset Management Corp. *
(b) Form of Subadvisory Agreement. *
(6) Distribution Agreement. Inapplicable.
(7) Bonus, Profit Sharing, Pension or Similar Contracts.
Inapplicable.
(8) Custodian Agreement. *
(9) Fund Participation Agreement between Registrant and Anchor
National Life Insurance Company, on behalf of itself and Variable
Annuity Account Five.*
(10) Opinion and Consent of Counsel.*
(11) Consent of Independent Accountants.*
(12) Financial Statements Omitted from Item 23. Inapplicable.
(13) Initial Capitalization Agreement.*
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(14) Model Plan. Inapplicable.
(15) Rule 12b-1 Plan. Inapplicable.
(16) Performance Computations. Inapplicable.
(17) Powers of Attorney.*
* To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
[To be provided.]
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of [DATE] the number of record holders of Seasons Series Trust was as
follows:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Beneficial Interest 1 *
* Held by [Variable Annutiy Account Five of Anchor National Life Insurance
Company].
ITEM 27. INDEMNIFICATION.
Article VI of the Registrant's By-Laws relating to the indemnification of
officers and trustees is quoted below:
ARTICLE VI
INDEMNIFICATION
The Trust shall provide any indemnification required by applicable law
and shall indemnify trustees, officers, agents and employees as follows:
(a) the Trust shall indemnify any Trustee or officer of the Trust who was
or is a party or is threatened to be made a party of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in the right of
the Trust) by reason of the fact that such Person is or was such Trustee or
officer or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, Trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such Person in connection
with such action, suit or proceeding, provided such Person acted in good
faith an in a manner such Person reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such
Person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Person did not
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reasonably believe his or her actions to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such Person's conduct was
unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was
or is a part or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Trust to procure a
judgment in its favor by reason of the fact that such Person is or was such
Trustee or officer or an employee or agent of the Trust, or is or was
serving at the request of the Trust as a Trustee, officer, employee or
agent of another corporation, partnership, joint venture, Trust or other
enterprise, against expenses (including attorneys' fees), actually and
reasonably incurred by such Person in connection with the defense or
settlement of such action or suit if such Person acted in good faith and in
a manner such Person reasonably believed to be in or not opposed to the
best interests of the Trust, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such Person shall have
been adjudged to be liable for negligence or misconduct in the performance
of such Person's duty to the Trust unless and only to the extent that the
court in which such action or suit was brought, or any other court having
jurisdiction in the premises, shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of
the case, such Person is fairly and reasonably entitled to indemnity for
such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subparagraphs (a) or (b) above or in defense of
any claim, issue or matter therein, such Person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by such Person in connection therewith, without the necessity for
the determination as to the standard of conduct as provided in subparagraph
(d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case
upon a determination that indemnification of the Trustee or officer is
proper in view of the standard of conduct set forth in subparagraph (a) or
(b). Such determination shall be made (i) by the Board by a majority vote
of a quorum consisting of Trustees who were disinterested and not parties
to such action, suit or proceedings, or (ii) if such a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion, and any determination so made shall be conclusive and
binding upon all parties.
(e) Expenses incurred in defending a civil or criminal action, writ or
proceeding may be paid by the Trust in advance of the final disposition of
such action, suit or proceeding, as authorized in the particular case, upon
receipt of an undertaking by or on behalf of the Trustee or officer to
repay such amount unless it shall ultimately be determined that such Person
is entitled to be indemnified by the Trust as authorized herein. Such
determination must be made by disinterested Trustees or independent legal
counsel.
Prior to any payment being made pursuant to this paragraph, a majority of
quorum of disinterested, non-party Trustees of the Trust, or an independent
legal counsel in a written opinion, shall determine, based on a review of
readily available facts that there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
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(f) Agents and employees of the Trust who are not Trustees or officers of
the Trust may be indemnified under the same standards and procedures set
forth above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
and shall continue as to a Person who has ceased to be a Trustee or officer
and shall inure to the benefit of the heirs, executors and administrators
of such a Person.
(h) Nothing in the Declaration or in these By-Laws shall be deemed to
protect any Trustee or officer of the Trust against any liability to the
Trust or to its Shareholders to which such Person would otherwise be
subject by reason of willful malfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Person's
office.
(i) The Trust shall have power to purchase and maintain insurance on
behalf of any Person against any liability asserted against or incurred by
such Person, whether or not the Trust would have the power to indemnify
such Person against such liability under the provisions of this Article.
Nevertheless, insurance will not be purchased or maintained by the Trust if
the purchase or maintenance of such insurance would result in the
indemnification of any Person in contravention of any rule or regulation
and/or interpretation of the Securities and Exchange Commission.
* * * * * * * * * * * * * *
[The Investment Advisory and Management Agreement provides that in
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of office on the part of
the Adviser (and its officers, directors, agents, employees, controlling
persons, shareholders and any other person or entity affiliated with the
Adviser to perform or assist in the performance of its obligations under
each Agreement) the Adviser shall not be subject to liability to the Trust
or to any shareholder of the Trust for any act or omission in the course
of, or connected with, rendering services, including without limitation,
any error of judgment or mistake or law or for any loss suffered by any of
them in connection with the matters to which each Agreement relates, except
to the extent specified in Section 36(b) of the Investment Company Act of
1940 concerning loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services. Certain of the Subadvisory
Agreements provide for similar indemnification of the Subadviser by the
Adviser.]
[SunAmerica Inc., the parent of Anchor National Life Insurance
Company, provides, without cost to the Trust, indemnification of individual
trustees. By individual letter Agreement, SunAmerica Inc. indemnifies each
trustee to the fullest extent permitted by law against expenses and
liabilities (including damages, judgments, settlements, costs, attorneys'
fees, charges and expenses) actually and reasonably incurred in connection
with any action which is the subject of any threatened, asserted, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise and whether formal or informal
to which any trustee was, is or is threatened to be made a party by reason
of facts which include his being or having been a trustee, but only to the
extent such expenses and liabilities are not covered by insurance.]
C-4
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF ADVISER.
SunAmerica Asset Management Corp. ("SAAMCo"), the Adviser of the Trust, is
primarily in the business of providing investment management, advisory and
administrative services. Reference is made to the most recent Form ADV and
schedules thereto of SAAMCo on file with the Commission (File No. 801-
19813) for a description of the names and employment of the directors and
officers of SAAMCo and other required information.
T. Rowe Price Associates, Inc., Janus Capital Corporation, and Wellington
Management Company, the Subadvisers of certain of the Portfolios of the
Trust, are primarily engaged in the business of rendering investment
advisory services. Reference is made to the most recent Form ADV and
schedules thereto on file with the Commission for a description of the
names and employment of the directors and officers of T. Rowe Price
Associates, Inc., Janus Capital Corporation, and Wellington Management
Company, and other required information:
File No.
--------
T. Rowe Price Associates, Inc. 801-856
Janus Capital Corporation 80-13991
Wellington Management Company 801-15908
ITEM 29. PRINCIPAL UNDERWRITERS.
There is no Principal Underwriter for the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian, transfer agent and dividend paying
agent. It maintains books, records and accounts pursuant to the
instructions of the Trust.
SunAmerica Asset Management Corp., is located at The SunAmerica Center, 733
Third Avenue, New York, New York 10017-3204. T. Rowe Price Associates,
Inc. is located at 100 East Pratt Street, Baltimore, Maryland 21202.
Janus Capital Corporation is located at 100 Fillmore Street,
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<PAGE>
Suite 300, Denver, Colorado 80296-4923. Wellington Management Company is
located at 75 State Street, Boston, Massachusetts 02109. Each of the
Adviser and Subadvisers maintain the books, accounts and records required
to be maintained pursuant to Section 31(a) of the Investment Company Act of
1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS
To file a post-effective amendment, using financial statements which may
not be certified, within four to six months of the effective date of this
Registration Statement.
The Registrant will furnish each person to whom a Prospectus is delivered
with a copy of Registrant's latest annual report to shareholders, upon request
and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 18th day of July, 1996.
SEASONS SERIES TRUST
REGISTRANT
By: /s/ Peter C. Sutton, Vice President
-------------------------------------
(Peter C. Sutton, Vice President)
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ James K. Hunt Chairman and President
- ------------------------- (Principal Executive Officer) July 18, 1996
(James K. Hunt)
/s/ Scott L. Robinson Senior Vice President, Treasurer
- ------------------------- and Controller (Principal
(Scott L. Robinson) Financial Accounting Officer) July 18, 1996
/s/ Susan L. Harris Vice President, Counsel, Secretary
- ------------------------- and Trustee July 18, 1996
(Susan L. Harris)
/s/ Robert M. Zakem Assistant Secretary and Trustee July 18, 1996
- -------------------------
(Robert M. Zakem)
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
1. Declaration of Trust.
2. By-Laws.
<PAGE>
DECLARATION OF TRUST
OF
SEASONS SERIES TRUST
BUSINESS OFFICE:
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ----
I. NAME AND DEFINITIONS 1
1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. TRUSTEES 3
2.1 Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Term and Election. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Resignation and Removal by Trustees. . . . . . . . . . . . . . . . . 4
2.4 Removal by Shareholders. . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Delegation of Power to Other Trustees. . . . . . . . . . . . . . . . 5
III. POWERS OF TRUSTEES 5
3.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Legal Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Issuance and Repurchase of Shares. . . . . . . . . . . . . . . . . . 8
3.5 Delegation; Committees . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Collection and Payment . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 Miscellaneous Powers . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 Principal Transactions . . . . . . . . . . . . . . . . . . . . . . .10
3.12 Trustees and Officers as Shareholders. . . . . . . . . . . . . . . .10
3.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
IV. CONTRACTS 10
4.1 Agreements for the Sale of Shares. . . . . . . . . . . . . . . . . .10
4.2 Investment Advisory or Management Contract . . . . . . . . . . . . .11
4.3 Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.4 Affiliations of Trustees or Officers, etc. . . . . . . . . . . . . .11
(i)
<PAGE>
Article Page
- ------- ----
V. LIMITATIONS OF LIABILITY of SHAREHOLDERS,
TRUSTEES AND OTHERS 12
5.1 No Personal Liability of Shareholders, Trustees, etc.. . . . . . . .12
5.2 Non-Liability of Trustees, etc.. . . . . . . . . . . . . . . . . . .13
5.3 No Bond Required of Trustees . . . . . . . . . . . . . . . . . . . .13
5.4 No Duty of Investigation; Notice in Trust Instruments, etc.. . . . .13
5.5 Reliance on Experts, etc.. . . . . . . . . . . . . . . . . . . . . .14
VI. SHARES OF BENEFICIAL INTEREST 14
6.1 Beneficial Interest. . . . . . . . . . . . . . . . . . . . . . . . .14
6.2 Rights of Shareholders . . . . . . . . . . . . . . . . . . . . . . .15
6.3 Trust Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.4 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . .15
6.5 Register of Shares; Share Certificates . . . . . . . . . . . . . . .16
6.6 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . .16
6.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
6.8 Treasury Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .17
6.9 Voting Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
6.10 Series or Classes of Shares. . . . . . . . . . . . . . . . . . . . .17
VII. REDEMPTION, REPURCHASE AND REDUCTION OF SHARES 19
7.1 Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . .19
7.2 Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
7.3 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
7.4 Repurchase by Agreement. . . . . . . . . . . . . . . . . . . . . . .20
7.5 Redemption of Shareholder's Interest; Redemption of Shares to Qualify
as a Regulated Investment Company; Disclosure of Holdings . . .20
7.6 Suspension of Right of Redemption. . . . . . . . . . . . . . . . . .21
7.7 Effect of Suspension of Determination of Net Asset Value . . . . . .21
7.8 Reductions of Shares . . . . . . . . . . . . . . . . . . . . . . . .22
(ii)
<PAGE>
Article Page
- ------- ----
VIII. DETERMINATION OF NET ASSET VALUE, NET INCOME
AND DISTRIBUTIONS 22
8.1 Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.2 Distributions With Respect to Outstanding Shares . . . . . . . . . .22
8.3 Determination of Net Income. . . . . . . . . . . . . . . . . . . . .23
8.4 Power to Modify Foregoing Procedures . . . . . . . . . . . . . . . .23
IX. DURATION; TERMINATION OF TRUST; AMENDMENT;
MERGERS; ETC. 24
9.1 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
9.2 Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . .24
9.3 Amendment Procedure. . . . . . . . . . . . . . . . . . . . . . . . .25
9.4 Merger, Consolidation or Sale of Assets. . . . . . . . . . . . . . .25
9.5 Incorporation. . . . . . . . . . . . . . . . . . . . . . . . . . . .26
X. MISCELLANEOUS 26
10.1 Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
10.4 Reliance by Third Parties. . . . . . . . . . . . . . . . . . . . . .27
10.5 Provisions in Conflict With Law or Regulations . . . . . . . . . . .27
10.6 Index and Heading for Reference Only . . . . . . . . . . . . . . . .28
10.7 Principal Office and Resident Agent. . . . . . . . . . . . . . . . .28
(iii)
<PAGE>
DECLARATION OF TRUST
OF
SEASONS SERIES TRUST
Dated October 10, 1995
DECLARATION OF TRUST made October 10, 1995, by Susan L. Harris, Robert
M. Zakem and Jeremiah J. Bresnahan (the "Trustees");
WHEREAS, the Trustees desire to establish a trust under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders of the shares of beneficial interest issued
pursuant to this Declaration of Trust and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1 - NAME.
The name of the Trust created hereby is "Seasons Series Trust."
SECTION 1.2 - DEFINITIONS.
Wherever they are used herein, the following terms shall have the
following respective meanings:
(a) "BY-LAWS" means the By-Laws referred to in Section 3.9
hereof, as amended from time to time.
(b) The terms "COMMISSION," "AFFILIATED PERSON," and "INTERESTED
PERSON," have the meanings given them in the Investment Company Act of 1940.
The term "vote of a majority of the
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<PAGE>
Shares outstanding and entitled to vote" shall have the same meaning as the term
"vote of a majority of the outstanding voting securities" contained in the
Investment Company Act of 1940.
(c) "CUSTODIAN" means any Person other than the Trust who has
custody of any Trust Property as required by Section 17(f) of the 1940 Act.
(d) "DECLARATION" means this Declaration of Trust as amended
from time to time. Reference in this Declaration to "DECLARATION," "HEREOF,"
"HEREIN" and "HEREUNDER" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(e) "DISTRIBUTOR" means the other Person to any contract entered
into by the Trust pursuant to Section 4.1 hereof.
(f) "FUNDAMENTAL POLICIES" means the investment restrictions as
set forth and identified as such in the most current effective registration
statement for the Trust as on file with the Securities and Exchange Commission.
(g) "HIS" shall be deemed to include the feminine and neuter, as
well as the masculine, genders.
(h) "INVESTMENT ADVISER" means the other Person to any contract
entered into by the Trust pursuant to Section 4.2 hereof and any sub-advisers
under such a contract.
(i) The "1940 ACT" means the Investment Company Act of 1940, as
amended from time to time.
(j) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, and other entities, whether
or not legal entities, governments and agencies and instrumentalities and
political subdivisions thereof, and quasi-governmental agencies and
instrumentalities.
(k) "PROSPECTUS" means the Prospectus of the Trust effective
from time to time under the Securities Act of 1933, as amended from time to
time.
(l) "SECURITIES" shall include, without limitation, common and
preferred stocks; American Depository Receipts, currency futures, certificates
of deposit, finance paper, commercial paper, bankers acceptances and all kinds
of repurchase agreements and reverse repurchase agreements entered into by any
Person; warrants; options; bonds; debentures; bills; notes; other evidences of
indebtedness; negotiable or non-negotiable instruments; government securities,
including, without limitation, securities of the United States or any other
government, any state, municipality or other political subdivision thereof, or
any governmental or quasi-governmental agency or instrumentality.
-2-
<PAGE>
(m) "SHAREHOLDER" means a record owner of outstanding Shares.
(n) "SHARES" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares. "OUTSTANDING"
Shares means those Shares shown from time to time on the books of the Trust or
its Transfer Agent as then issued and outstanding, but shall not include Shares
which have been redeemed or repurchased by the Trust.
(o) "TRANSFER AGENT" means the other Person to any contract
entered into by the Trust pursuant to Section 4.3 hereof.
(p) "TRUST" means the Trust created by this Declaration.
(q) "TRUST PROPERTY" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust or the Trustees as such, but shall not include property owned by
the Trustees in their individual capacity.
(r) "TRUSTEES" means the Persons who have signed this
Declaration, for so long as they shall continue in office in accordance with the
terms hereof, and all other Persons who may from time to time be serving as
Trustees in accordance with the provisions of Article II hereof, and reference
herein to a Trustee or the Trustees shall refer to such Person or Persons in his
capacity as Trustee or their capacities as Trustees hereunder, and shall not
refer to his or their individual capacities except where the context requires
otherwise.
ARTICLE II
TRUSTEES
SECTION 2.1 - NUMBER OF TRUSTEES.
The number of Trustees shall be such number as shall be fixed from
time to time by written instrument signed by a majority of the Trustees,
provided, however, that the number of Trustees shall in no event be reduced to
less than two by such an instrument.
SECTION 2.2 - TERM AND ELECTION.
The Trustees shall (except in the event of resignations or removals or
vacancies pursuant to Sections 2.3 or 2.4 hereof) hold office during the
lifetime of the Trust and until its termination as hereinafter provided.
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<PAGE>
SECTION 2.3 - RESIGNATION AND REMOVAL BY TRUSTEES.
Any Trustee may resign as such (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the other
Trustees and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument. Any of the Trustees may be
removed (provided the aggregate number of Trustees after such removal shall not
be less than the minimum number required by this Declaration) by the action of
two-thirds of the remaining Trustees. Upon the resignation or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held in the
name of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
SECTION 2.4 - REMOVAL BY SHAREHOLDERS.
The Shareholders shall have the power to remove a Trustee by the
affirmative vote of the holders of not less than two-thirds of the Shares
Outstanding and entitled to vote either by declaration in writing filed with the
Custodian or by votes cast in person or by proxy at a meeting called for the
purpose of removal under this section. The Trustees shall promptly call such a
meeting of Shareholders when requested to do so by the record holders of not
less than 10 percent of the Outstanding Shares.
Whenever ten or more Shareholders of record who have been Shareholders
for at least six months preceding the date of application, and who hold in the
aggregate either Shares having a net asset value of at least $100,000 or at
least 1 per centum of the Outstanding Shares, whichever is less, shall apply to
the Trustees in writing, stating what they wish to communicate with other
Shareholders with a view to obtaining signatures in order to request a meeting
pursuant to this Section 2.4, and such application shall be accompanied by a
form of communication and request that they wish to transmit; the Trustees
shall, within five business days after receipt of such application, either:
(a) Afford to such applicants access to a list of the names and
addresses of all Shareholders as recorded on the books of the Trust; or
(b) Inform such applicants as to the approximate number of
Shareholders of record, and the approximate cost of mailing to them the proposed
communication and form of request. Upon tender by such applicants of the amount
so determined, undertake to mail such communication to Shareholders of record.
SECTION 2.5 - VACANCIES.
The term of office of a Trustee shall terminate and a vacancy shall
occur in the event of his death, resignation, removal, bankruptcy, adjudicated
incompetence or other permanent incapacity as
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<PAGE>
two-thirds of the remaining Trustees deem to have rendered him unable to perform
the duties of the office of a Trustee. No such vacancy shall operate to annul
this Declaration or to revoke any existing agency created pursuant to the terms
of this Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of the 1940 Act, the remaining Trustees shall fill such vacancy by
the appointment of such other Person as they in their discretion shall see fit,
pursuant to a written instrument signed by a majority of the Trustees then in
office. No such appointment shall become effective until the Person named in
the written instrument of appointment shall have accepted such appointment in
writing and agreed in writing to be bound by the terms of this Declaration. An
appointment of a Trustee may be made in anticipation of a vacancy to occur at a
later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.5, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of any such vacancy.
SECTION 2.6 - DELEGATION OF POWER TO OTHER TRUSTEES.
Any Trustee may, by power of attorney, delegate his power for a period
not exceeding six (6) months at any one time to any other Trustee or Trustees,
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided, and provided further that this Section shall in no
way be deemed to limit the provisions of Section 3.5.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1 - GENERAL.
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right.
The Trustees are responsible for the general policies of the Trust and
for such general supervision of the business of the Trust conducted by all
officers, employees, agents, Investment Advisers, Sub-advisers with whom a
contract with the Investment Adviser has been approved in accordance with
applicable law, Distributors, Custodians, Transfer Agents or independent
contractors of the Trust as may be necessary to ensure that such business
conforms to the provisions of this Declaration. However, the Trustees are not
and shall not be required personally to conduct the
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<PAGE>
business of the Trust and, consistent with their ultimate responsibility as
stated above, the Trustees shall have the power to appoint, employ or contract
with any Person or Persons (including one or more of themselves or any Person in
which one or more of them may be directors, officers, agents, employees,
stockholders, partners or Trustees or with which one or more of them may be
otherwise affiliated) as the Trustees may deem necessary or proper for the
transaction of the business of the Trust, and for such purpose may grant or
delegate such authority to any such Person as the Trustees may in their sole
discretion deem necessary or desirable without regard to whether such authority
is normally granted or delegated by Trustees. The Trustees shall have the power
to determine the terms and compensation of any such Person and may exercise
broad discretion in allowing such Person to administer and regulate the
operations of the Trust, to act as agent for the Trust, to execute documents on
behalf of the Trustees or the Trust, and to make executive decisions which
conform to the general policies and general principles previously established by
the Trustees.
The Trustees shall have power to conduct the business of the Trust and
carry on its operations in any and all of its branches and maintain offices both
within and without the Commonwealth of Massachusetts, in any and all states of
the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, and possessions of the
United States of America and of foreign governments, and to do all such other
things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust, notwithstanding that
such matters may not be specifically mentioned herein. Any determination as to
what is in the interests of the Trust or as to the existence of powers or
authorities hereunder made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration, there shall be a presumption
in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers, or as limiting Trustees to such powers. Such
powers of the Trustees may be exercised without order, and without resort to any
court.
SECTION 3.2 - INVESTMENTS.
The Trustees shall have the power, subject to the Fundamental
Policies:
(a) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to the conduct of
such business;
(b) To invest in, hold for investment, and reinvest in
Securities, or, in "when issued" or delayed delivery contracts for any
Securities or retain all or any part of the Trust Property in cash and at any
time and from time to time to change the investments of the Trust Property;
(c) To acquire (by purchase, subscription or otherwise), to
hold, to trade in and deal in, to sell or otherwise dispose of, to lend, and to
pledge, Securities;
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<PAGE>
(d) To exercise all rights, powers and privileges of ownership
or interest in all Securities included in the Trust Property, including the
right to vote thereon and otherwise act with respect thereto and to do all acts
for the preservation, protection, improvement and enhancement in value of all
Trust Property;
(e) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise) any property, real
or personal, tangible or intangible, including, without limitation, cash and any
interest therein;
(f) To borrow money and, in connection therewith, to issue
notes or other evidences of indebtedness; to secure borrowings by mortgaging,
pledging or otherwise subjecting as security the Trust Property or any portion
thereof; to endorse, guarantee, or undertake the performance of any obligation
or engagement of any other Person and to lend Trust Property;
(g) To deposit any monies or Securities included in the Trust
Property with one or more banks, trust companies or other banking institutions
whether or not such deposits will draw interest; such deposits to be subject to
withdrawal in such manner as the Trustees may determine, and the Trustees shall
have no responsibility for any loss which may occur by reason of the failure of
the bank, trust company or other banking institution with whom the monies or
Securities have been deposited;
(h) To do all acts and things designed to protect, preserve,
improve or enhance the value of any Security or interest of the Trust; to
guarantee or become surety on any or all of the contracts, stocks, bonds, notes,
debentures and other obligations of the Trust; and
(i) In general to carry on any other business in connection with
or incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the attainment of
any objective or the furtherance of any power set forth herein, either alone or
in association with others, and to do every other act or things incidental or
appurtenant to, or growing out of, or connected with, the aforesaid business or
purposes, objectives or powers.
The foregoing clauses shall be construed both as objectives and
powers, and the foregoing enumeration of specific powers shall not be construed
to limit or restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3 - LEGAL TITLE.
Legal title to all the Trust Property shall be vested in the Trustees
as joint tenants except that the Trustees shall have power to cause legal title
to any Trust Property to be held by or in the name
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of one or more of the Trustees, or in the name of the Trust or a designated
series thereof, or in the name of any other Person as nominee, on such terms as
the Trustees may determine. The right, title and interest of the Trustees in
the Trust Property shall vest automatically in each Person who may become a
Trustee. Upon the termination of a Trustee's term of office, he shall
automatically cease to have any right, title or interest in the Trust Property
and such right, title, or interest shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
SECTION 3.4 - ISSUANCE AND REPURCHASE OF SHARES.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles
VII, VIII and IX, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares, any Trust Property whether capital or
surplus or otherwise, to the full extent now or hereafter not prohibited by the
laws of the Commonwealth of Massachusetts.
SECTION 3.5 - DELEGATION; COMMITTEES.
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
in the names of the Trustees or otherwise as the Trustees may deem expedient,
except as may be prohibited by the 1940 Act.
SECTION 3.6 - COLLECTION AND PAYMENT.
The Trustees shall have power to collect all property due to the Trust; to
pay all claims, including, without limitation, taxes, against the Trust
Property; to prosecute, defend, compromise or abandon any claims relating to the
Trust Property; to foreclose any security interest securing any obligations, by
virtue of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
SECTION 3.7 - EXPENSES.
The Trustees shall have the power to incur and pay any expenses which,
in the opinion of the Trustees, are necessary or incidental to carrying out any
of the purposes of this Declaration; to pay themselves reasonable compensation
and to reimburse themselves for expenses incurred in the performance of their
duties as Trustees from the Trust Property. The Trustees shall fix the
compensation of all officers, employees, agents and Trustees.
SECTION 3.8 - MANNER OF ACTING.
Except as otherwise provided herein or in the By-Laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of the Trustees at which a quorum
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is present, including any meeting held by means of a conference telephone
circuit or similar communications equipment by which all Persons participating
in the meeting can hear one another, or by written consent of the entire number
of Trustees then in office.
SECTION 3.9 - BY-LAWS.
The Trustees may adopt By-Laws not inconsistent with this Declaration
to provide for the conduct of the business of the Trust and may amend or repel
such By-Laws to the extent such power is not specifically reserved to the
Shareholders.
SECTION 3.10 - MISCELLANEOUS POWERS.
The Trustees shall have the power to:
(a) Employ or contract with such Person or Persons as the
Trustees may deem desirable for the transaction of the business of the Trust;
(b) Enter into joint ventures, partnerships and any other
combinations or associations;
(c) Remove Trustees or fill vacancies in, or add to their
number, elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine;
(d) Purchase, and pay for out of Trust Property insurance
policies insuring the Shareholders, Trustees, officers, employees, agents,
Investment Advisers, Distributors, Transfer Agents, Custodians, selected dealers
or independent contractors of the Trust against any and all claims and
liabilities arising by reason of holding any such position or by reason of any
action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, and whether or not the Trust would have the power to
indemnify such Person against such claim or liability;
(e) Establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees
and agents of the Trust;
(f) To the extent not prohibited by law, indemnify any Person
with whom the Trust had dealings, including any Investment Adviser, Distributor,
Transfer Agent and selected dealers, to such extent as the Trustees shall
determine;
(g) Guarantee indebtedness or contractual obligations of others;
(h) Determine and change the fiscal year of the Trust and the
method by which its accounts shall be kept; and
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(i) Adopt a seal for the Trust, but the absence of such seal
shall not impair the validity of any instrument executed on behalf of the Trust.
SECTION 3.11 - PRINCIPAL TRANSACTIONS.
Except in transactions permitted by the 1940 Act or any order of
exemption issued by the Commission, or effected to implement the provisions of
any agreement to which the Trust is a party, the Trustees shall not, on behalf
of the Trust, buy any Securities (other than Shares) from or sell any Securities
(other than Shares) to, or lend any assets of the Trust to, any Trustee or
officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with the Manager,
Distributor or Transfer Agent or with any Affiliated Person of such Person, but
the Trust may employ any such Person, or firm or company in which such Person is
an Interested Person, as broker, legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian upon customary terms.
SECTION 3.12 - TRUSTEES AND OFFICER AS SHAREHOLDERS.
Any Trustee, officer, employee or agent of the Trust may acquire, own
and dispose of Shares to the same extent as if he were not such a Trustee,
officer, employee or agent; and the Trustees may issue and sell, or cause to be
issued or sold, Shares to, and buy Shares from, any such Person or any firm or
company in which he is an Interested Person.
SECTION 3.13 - LITIGATION.
The Trustees shall have the power to engage in and to prosecute,
defend, compromise, abandon, or adjust, by arbitration or otherwise, any
actions, suits, proceedings, disputes, claims, and demands relating to the
Trust, and out of the assets of the Trust, to pay or to satisfy any debts,
claims or expenses incurred in connection therewith, including those of
litigation, and such power shall include without limitation the power of the
Trustees or any appropriate committee thereof, in the exercise of their or its
good faith business judgment, to dismiss any action, suit, proceeding, dispute,
claim, or demand, derivative or otherwise, brought by any Person, including a
Shareholder in its own name or the name of the Trust, whether or not the Trust
or any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
ARTICLE IV
CONTRACTS
SECTION 4.1 - AGREEMENTS FOR THE SALE OF SHARES.
Subject to the provisions of the 1940 Act, the Trustees may, in their
discretion, from time to time enter into, renew, amend, or modify an exclusive
or non-exclusive underwriting contracts or
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Fund Participation Agreements providing for the sale of the Shares to net the
Trust an amount per Share not less than the amount provided for in Section 8.1
hereof, whereby the Trustees may agree to sell the Shares to the other party to
the contract and/or appoint such other party sales agent of the Trust for the
Shares, on such terms and conditions as may be prescribed in the By-Laws, if
any, and such further terms and conditions as the Trustees may, in their
discretion, determine not inconsistent with the provisions of this declaration
or the By-Laws; and any such contract may also provide for the redemption or
repurchase of the Shares.
SECTION 4.2 - INVESTMENT ADVISORY OR MANAGEMENT CONTRACT.
Subject to the provisions of the 1940 Act, the Trustees may, in their
discretion, from time to time enter into, renew, amend, or modify an investment
advisory and/or management contract or contracts whereby the other party or
parties to such contract or contracts shall undertake to furnish to the Trust
such management, investment advisory, statistical, and research facilities and
services and such other facilities and service, if any, and all upon such terms
and conditions as the Trustees may, in their discretion, determine, including
the grant of authority to such other party to determine what Securities shall be
purchased or sold by the Trust and what portion of its assets shall be left
uninvested, which authority shall include the power to make changes in the
Trust's investments. Notwithstanding any provisions of this Declaration, the
Trustees may authorize the Investment Adviser (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of Securities of the Trust on behalf of the
Trustees and may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of the
Investment Adviser, all without further action by the Trustees. Any such
activities shall be deemed to have been authorized by all of the Trustees. Such
investment advisory and/or management contract may permit the investment
advisory organization to sub-contract some or all of the services described in
the contract to a third party provided such sub-contracts are approved by the
Trustees prior to the effective date of such services.
SECTION 4.3 - TRANSFER AGENT.
The Trustees may in their discretion from time to time enter into a
transfer agency and Shareholder service contract or contracts whereby the other
party or parties to such contract or contracts shall undertake to furnish
transfer agency and Shareholder services to the Trust. Any such contract shall
have such terms and conditions as the Trustees may, in their discretion,
determine not inconsistent with this Declaration or the By-Laws. Such services
may be provided by one or more Persons.
SECTIONS 4.4 - AFFILIATIONS OF TRUSTEES OR OFFICER, ETC.
Any Shareholder, Trustee or officer of the Trust, individually, or any
firm of which any Shareholder, Trustee or officer of the Trust may be a member,
or any Person of which any Shareholder, Trustee or officer of the Trust may be
an officer or director or in which any Shareholder, Trustee or officer of the
Trust may be directly or indirectly interested as the holder of any amount of
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its capital stock or otherwise, may be a party to, or may be financially or
otherwise interested in, any contract or transaction of the Trust, and, in the
absence of fraud, no contract or other transaction shall be thereby affected or
invalidated by reason of the existence of any such relationship; nor shall any
Person holding such relationship be liable merely by reason of such relationship
for any loss or expense to the Trust under or by reason of such contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the fact of any such interests or relationships shall be disclosed or shall
have been known to the Trustees or a majority thereof. Any such Shareholder,
Trustee or officer of the Trust may be counted in determining the existence of a
quorum at the meeting of the Trustees of the Trust which shall authorize any
such contract or transaction, and may vote thereat to authorize any such
contract or transaction, with like force and effect as if such other interests
or relationships did not exist. In furtherance and not in limitation of the
foregoing, the Trustees of the Trust are expressly authorized to contract for
investment advisory and management services of any nature, as described in
Section 4.2, with any Person Affiliated with any Trustee or parent or Affiliated
or Interested Person of any such Person, on such terms as the Trustees may deem
desirable. The Trustees are further expressly authorized to contract with any
such Person or parent or Affiliated or Interested Person of any such Person on
such terms as the Trustees may deem desirable for the distribution of Shares of
the Trust as described in Section 4.1 and to contract for other services,
including, without limitation services as Transfer Agent for the Trust's Shares
as described in Section 4.3 above with any such Person on such terms as the
Trustees may deem desirable. Any such Person or parent or Affiliated or
Interested Person of any such Person which enters into one or more of such
contracts may also perform similar or identical services for other investment
companies and other Persons without restriction by reason of the relationship
with the Trust.
ARTICLE V
LIMITATIONS OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS
SECTION 5.1 - NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC.
No Shareholder as such shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
omissions, obligations or affairs of the Trust. No Trustee, officer, employee
or agent of the Trust as such shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the affairs of the
Trust, save only that to which they would be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of their duties,
or by reason of their reckless disregard of their obligations and duties with
respect to such Person; and all Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising directly or indirectly in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall not, on account
thereof, be held to any personal liability. The Trust shall indemnify and hold
each Shareholder harmless from and against
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all claims and liabilities to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability. The rights accruing to a
Shareholder under this Section 5.1 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
SECTION 5.2 - NON-LIABILITY OF TRUSTEES, ETC.
No Trustee, officer, employee or agent of the Trust shall be liable to
the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee,
or agent thereof for any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of Trust), except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
SECTION 5.3 - NO BOND REQUIRED OF TRUSTEES.
No Trustee shall be obligated to give any bond or other security for
the performance of any of his duties.
SECTION 5.4 - NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC.
No purchaser, lender, Transfer Agent, Custodian or other Person
dealing with the Trustees or any officer, employee or agent of the Trust shall
be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of Trust Property paid, loaned, or delivered to or
on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking, and every other act or thing whatsoever executed in
connection with or on behalf of the Trust shall be conclusively presumed to have
been executed or done by the executors thereof only in their capacity as
Trustees under this Declaration or in their capacity as officer, employees or
agents of the Trust. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking made or issued by
the Trustees may recite, in substance, that the same is executed or made by them
not individually, but as Trustees under the Declaration, and that the
obligations of the Trust under any such instrument are not binding upon any of
the Trustees or Shareholders individually, but bind only the Trust estate, and
may contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to bind the Trustee or Shareholders
individually. The Trustees may maintain insurance for the protection of the
Trust Property, its Shareholders, Trustees, officer, employees, and agents in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
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SECTION 5.5 - RELIANCE ON EXPERTS, ETC.
Each Trustee, officer, employee, or agent of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officer, employees,
agents or by the Investment Adviser, the Distributor, Transfer Agent, Custodian,
selected dealers, accountants, appraisers or other experts or consultants
selected with reasonable care by the Trustees, officers, or employees of the
Trust, regardless of whether any such Person may also be a Trustee or an
Interested Person of the Trust.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1 - BENEFICIAL INTEREST.
The interest of the beneficiaries of the Trust shall be divided into
transferable Shares and fractions of Shares of beneficial interest, $.01 par
value, in the various series of the Trust. The number of Shares of beneficial
interest in each series of the Trust is unlimited. Prior to issuance of any
Shares, the Trustees may, by resolution, designate them as a series and give
them the name of the Portfolio of the Trust with respect to which such Shares
will be issued. The Trustees shall have authority in their sole discretion to
create additional series of Shares of beneficial interest, on such terms and
conditions as they may determine, without vote of the Shareholders. The
Trustees shall have authority, in their sole discretion, to combine series of
Shares of beneficial interest with another series of Shares of beneficial
interest without vote of the Shareholders, either
(a) through an exchange of Shares of beneficial interest in one
series for Shares of beneficial interest in another series, or
(b) by amendment of the terms of and conditions applicable to a
series of Shares of beneficial interest to conform such terms and
conditions to the terms and conditions applicable to the other series of
Shares of beneficial interest;
provided that any such combination of two or more series of Shares of beneficial
interest shall always be effected in a way that will preserve the relative net
asset value of the Shares of beneficial interest affected. All Shares of
beneficial interest issued hereunder including, without limitation, Shares of
beneficial interest issued in connection with any dividend declared and paid in
Shares of beneficial interest or any split of Shares of beneficial interest,
shall be fully paid and non-assessable.
The Trustees, in their discretion without a vote of the Shareholders,
may divide the Shares of beneficial interest of any series into classes. All
Shares of a class shall be identical to Shares of
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each other class, except for such variations between classes as may be approved
by the Board of Trustees and permitted by the 1940 Act or pursuant to any
exemptive order issued by the Commission. The bearing of expenses solely by a
class of Shares of a series shall be reflected appropriately (in the manner
determined by the Trustees) in the net asset value, dividend and liquidation
rights of the Shares of such class of a series. No division of Shares of a
series into classes shall result in the creation of a class of Shares having a
preference as to dividends or distributions or a preference in the event of any
liquidation, termination or winding up of the Trust. The Trustees may provide
that Shares of a class will be exchanged for Shares of another class without any
act or deed on the part of the holder of Shares of the class being exchanged,
whether or not Shares of such class are issued and outstanding, all on terms and
conditions as the Trustees may specify. The Trustees may redesignate a class or
series of Shares of beneficial interest or a portion of a class or series of
Shares of beneficial interest whether or not Shares of such class or series are
issued and outstanding, provided that such redesignation does not substantially
adversely affect the preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such issued and outstanding Shares of beneficial interest.
SECTION 6.2. - RIGHTS OF SHAREHOLDERS.
The ownership of the Trust Property of every description and the right
to conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest in the Trust Property or
in the business of the Trust other than the beneficial interest conferred by
their Shares, and they shall have no right to call for any partition, divisions,
dividends or distributions of any property, profits, rights or interests of the
Trust, nor can they be called upon personally to share or assume any losses of
the Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights
specifically set forth in this Declaration. The Shares shall not entitle the
Shareholder to preference, preemptive or appraisal rights except as the
Trustees may determine with respect to each series.
SECTION 6.3 - TRUST ONLY.
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, joint venture, corporation,
bailment or any form of legal relationship other than a Trust. Nothing in this
Declaration shall be construed to make the Shareholders, either by themselves or
with the Trustees, partners or members of a joint stock association.
SECTION 6.4 - ISSUANCE OF SHARES.
The Trustees, in their discretion, may at any time and from time to
time without vote of the Shareholders, issue Shares of one or more Trust series
to a person or persons for such amount and type of consideration, including cash
or property, and, the Trustees may also reduce the number of outstanding Shares
of one or more Trust series, at such time or times, and on such terms as the
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Trustees may deem appropriate, and the Trustees may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of liabilities) and businesses. In connection with any issuance
of Shares of one or more Trust series, the Trustees may issue fractional Shares.
The Trustees may from time to time divide or combine the Shares of any series
into a greater or lesser number without thereby changing the proportionate
beneficial interests in the series. Contributions to a series may be accepted
for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a Share
or integral multiples thereof.
SECTION 6.5 - REGISTER OF SHARES; SHARE CERTIFICATES.
A register for each series of the Trust shall be kept at the principal
office of the Trust or of an office of the Transfer Agent which shall contain
the names and addresses of the Shareholders of that series and the number of
Shares of that series held by them respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the holders of the
Shares of that series and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders of
that series. No Shareholder shall be entitled to receive payment of any
dividend or distribution, or to have notice given to him as herein or in the By-
Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees who shall keep the register of that
series for entry thereon. It is not contemplated that certificates will be
issued for Shares; however, the Trustees, in their discretion, may authorize the
issuance of Share certificates and promulgate appropriate rules and regulations
as to their use.
SECTION 6.6 - TRANSFER OF SHARES.
Shares shall be transferable on the register of each series of the
Trust only by the record owner thereof or by his agent thereunto duly authorized
in writing, upon delivery to the Trustees or the Transfer Agent of a duly
executed instrument of transfer, together with such evidence of the genuineness
of each such execution and authorization and of such other matters as may
reasonably be required. Upon such delivery, the transfer shall be recorded on
the register of the particular series of the Trust. Until such record is made,
the owner of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent or registrar,
if any, nor any officer, employee or agent of the Trust shall be affected by any
notice of the proposed transfer.
Any Person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, except as may otherwise be provided by the laws of the Commonwealth of
Massachusetts, shall be recorded on the register of Shares of the Trust series
as the holder of such Shares upon production of the proper evidence thereof to
the Trustees or the Transfer Agent, but until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent or registrar,
if any, nor any officer or agent of the Trust shall be affected by any notice of
such death, bankruptcy or incompetence, or other operation of law.
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Nothing in this Declaration shall impose on the Trustees or a Transfer Agent a
duty, or limit their rights, to inquire into adverse claims.
SECTION 6.7 - NOTICES.
Any and all notices to which any Shareholder may be entitled and any
and all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust.
SECTION 6.8 - TREASURY SHARES.
Shares held in the treasury shall, until reissued pursuant to Section
6.4, not confer any voting rights on the Trustees, nor shall such Shares be
entitled to any dividends or other distributions declared with respect to the
Shares.
SECTION 6.9 - VOTING POWERS.
The Shareholders shall have power to vote with respect to such matters
relating to the Trust as may be required by law, this Declaration, the By-Laws,
the 1940 Act, any registration of the Trust with the Commission (or any
successor agency) or any state, or as the Trustees may consider necessary or
desirable.
Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares shall not entitle the Shareholders to preference,
appraisal, conversion, exchange or preemptive rights of any kind. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration or the By-Laws to be taken by
Shareholders. The By-Laws may include further provisions for Shareholder's
votes and meetings, setting of record dates, and related matters.
SECTION 6.10 - SERIES OR CLASSES OF SHARES.
Because the Shares of the Trust are intended to be divided into
multiple series and classes, as provided in Section 6.1 hereof, the following
provisions shall be applicable:
(a) The number of authorized Shares and the number of Shares of
each series or of each class that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any series or class into one or more
series or one or more classes that may be established and designated from
time to time. The Trustees may hold such shares as treasury Shares (of the
same or some other series or class), reissue them for such consideration
and on such terms as they may determine, or cancel any Shares of any series
or any class reacquired by the Trust at their discretion from time to time.
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(b) The power of the Trustees to invest and reinvest the Trust
Property shall be governed by Section 3.2 of this Declaration with respect
to any one series or class which represents the interests in the assets of
the Trust immediately prior to the establishment of two or more series or
classes and the power of the Trustees to invest and reinvest assets
applicable to any series or class shall be as set forth in the instrument
of the Trustees establishing such series or class which is hereinafter
described.
(c) All consideration received by the Trust for the issue or
sale of Shares of a particular series or class, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that series or class for all purposes,
subject only to the rights of creditors, and shall be so recorded upon the
books of account of the Trust. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which
are not readily identifiable as belonging to any particular series or
class, the Trustees shall allocate them among any one or more of the series
or classes established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and equitable.
Each such allocation by the Trustees shall be conclusive and binding upon
the Shareholders of all series or classes for all purposes.
(d) The assets belonging to each particular series or class
shall be charged with the liabilities of the Trust in respect of that
series or class and all expenses, costs, charges and reserves attributable
to that series or class, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as
belonging to any particular series or class shall be allocated and charged
by the Trustees to and among any one or more of the series or class
established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable.
Each allocation of liabilities, expenses, costs, charges and reserves by
the Trustees shall be conclusive and binding upon the holders of all series
or classes for all purposes. The Trustees shall have full discretion, to
the extent not inconsistent with the 1940 Act, to determine which items
shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.
(e) With respect to any series or class of Trust Shares,
dividends and distributions on Shares of a particular series or class may
be paid with such frequency as the Trustees may determine, which may be
daily or otherwise, pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine, to
the Shareholders of Shares of that series or class, from such of the income
and capital gains, accrued or realized, from the assets belonging to that
series or class, as the Trustees may determine, after providing for actual
and accrued liabilities belonging to that series or class. All dividends
and distributions on Shares of a particular series or class shall be
distributed pro rata to the shareholders of that series or class in
proportion to the number of Shares of that series or
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<PAGE>
class held by such shareholders at the date and time of record
established for the payment of such dividends or distributions.
(f) The Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, including
voting and dividend rights, of each class and series of Shares.
(g) The establishment and designation of any series or class of
Shares shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation
and the relative rights and preferences of such series or class, or as
otherwise provided in such instrument. At any time that there are no
Shares outstanding of any particular series or class previously established
and designated, the Trustees may, by an instrument executed by a majority
of their number, abolish that series or class and the establishment and
designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
ARTICLE VII
REDEMPTION, REPURCHASE, AND
REDUCTION OF SHARES
SECTION 7.1 - REDEMPTION OF SHARES.
All Shares of the Trust shall be redeemable, at the redemption price
determined in the manner set forth in this Declaration. Redeemed or repurchased
Shares may be reissued by the Trust.
The Trust shall redeem Shares at the price determined as hereinafter
set forth, upon the appropriately verified written application of the record
holder thereof (or upon such other form of request as the Trustees may
determine) at such office or agency as may be designated from time to time for
that purpose by the Trustees. The Trustees may from time to time specify
additional conditions not inconsistent with the 1940 Act regarding the
redemption of Shares.
SECTION 7.2 - PRICE.
Shares shall be redeemed at their net asset value determined as set
forth in Section 8.1 hereof as of such time as the Trustees shall have
prescribed by resolution. In the absence of such resolution, the redemption
price of Shares deposited shall be the net asset value of the particular Shares
of beneficial interest next determined as set forth in Section 8.1 after receipt
of the application required by Section 7.1.
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<PAGE>
SECTION 7.3 - PAYMENT.
Payment for redeemed Shares shall be made at such time and in the
manner, not inconsistent with the 1940 Act or other applicable law, as may be
specified from time to time in the Prospectus, subject to the provisions of
Section 7.4 hereof.
SECTION 7.4 - REPURCHASE BY AGREEMENT.
The Trust may repurchase Shares of any series of the Trust directly,
or through the Distributor or another agent designated for the purpose, by
agreement with the owner thereof at a price not exceeding the net asset value
per Share next determined after the time when the purchase or contract is made
or the net asset value as of any time which may be later determined pursuant to
Section 8.1 hereof, provided payment is not made for the Shares prior to the
time as of which such net asset value is determined.
SECTION 7.5 - REDEMPTION OF SHAREHOLDER'S INTEREST; REDEMPTION OF SHARES TO
QUALIFY AS A REGULATED INVESTMENT COMPANY; DISCLOSURE OF HOLDINGS.
The Trust shall have the right at any time to redeem the Shares of any
Shareholder for their then current net asset value per Share if at such time the
Shareholder owns Shares having an aggregate net asset value of less than the
minimum initial investment amount required of new Shareholders, subject to such
terms and conditions as the Trustees may approve and subject to the Trust's
giving general notice to all Shareholders of the existence of such right, either
by publication in the Trust's Prospectus, if any, or by such other means as the
Trustees may determine.
If the Trustees shall, at any time and in good faith, be of the
opinion that direct or indirect ownership of Shares or other Securities of
the Trust have or may become concentrated in any Person to an extent which
would disqualify the Trust as a regulated investment company under the
Internal Revenue Code, then the Trustees shall have the power by lot or other
means deemed equitable by them to:
(a) Call for redemption by any such Person a number, or
principal amount, of shares or other Securities of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other
Securities of the Trust into conformity with the requirements for such
qualification, and
(b) Refuse to transfer or issue Shares or other Securities of
the Trust to any Person whose acquisition of the Shares or other Securities
of the Trust in question would, in the judgment of the Trustees, be likely
to result in such disqualification.
The redemption shall be effected at the redemption price.
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<PAGE>
The holders of Shares or other Securities of the Trust shall, upon
demand, disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other Securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
SECTION 7.6 - SUSPENSION OF RIGHT OF REDEMPTION.
The Trust may declare a suspension of the right of redemption or
postpone the date of payment of redemption for the whole or any part of any
period:
(a) During which the New York Stock Exchange is closed other
than customary weekend and holiday closings;
(b) During which trading on the New York Stock Exchange is
restricted;
(c) During which an emergency exists as a result of which
disposal by the Trust of Securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Trust fairly to
determine the value of its net assets; or
(d) During any other period when the Commission may for the
protection of Shareholders of the Trust by order permit suspension of the
right of redemption or postponement of the date of payment of redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in subparagraphs (b), (c) or (d) exist.
Such suspension shall take effect at such time as the Trust shall specify but
not later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in
subparagraphs (b) or (c) above shall have expired (as to which the absence of an
official ruling by the Commission, the determination of the Trust shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value next determined after the termination of the
suspension.
SECTION 7.7 - EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET VALUE.
If, pursuant to Section 8.1, the Trustees shall declare a suspension
of the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 7.1, but who
shall not yet have received payment) to have Shares redeemed and paid for by the
Trust and the right of the Trust to redeem Shares at its option set forth in
Section 7.5, shall be suspended until the termination of such suspension is
declared. Any shareholder who shall have his redemption right so suspended may,
during the period of such suspension, by appropriate
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<PAGE>
written notice of revocation at the office or agency where application was made,
revoke any application for redemption not honored. The redemption price of
Shares for which redemption applications have not been revoked shall be the net
asset value of such Shares next determined as set forth in Section 7.1 hereof
after the termination of such suspension, and payment shall be made within seven
(7) days after the date upon which the application was made plus the period
after such application during which the determination of net asset value was
suspended.
SECTION 7.8 - REDUCTIONS OF SHARES.
The Trustees may also reduce the number of outstanding Shares of any
or all of the series.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME, AND DISTRIBUTIONS
SECTION 8.1 - NET ASSET VALUE.
The value of the assets of each series of the Trust shall be
determined as follows: Securities and other assets allocable to each series
shall be valued by methods, reflecting their fair value, as determined by the
Trustees in good faith.
From the total value of said assets, there shall be deducted the
liabilities of the series, including proper accruals of interest, taxes and
other expense items, amounts determined and declared as dividends or
distributions, and reserves for contingent or undetermined liabilities. The net
asset value of the series so obtained shall then be divided by the total number
of shares of the series outstanding and the result, rounded to the nearest one-
tenth of a cent, shall be the net asset value per Share of the series. The net
asset value of the Shares of the series shall be determined once on each
business day, as of the close of trading on the New York Stock Exchange or as of
such other time or times as the Trustees shall determine. The power and duty to
make the daily calculations may be delegated by the Trustees to the Investment
Adviser, the Custodian, the Transfer Agent, or such other Person as the Trustees
by resolution may determine. The Trustees may suspend the daily determination
of net asset value if to do so is not prohibited by the 1940 Act.
SECTION 8.2 - DISTRIBUTIONS WITH RESPECT TO OUTSTANDING SHARES.
The Trustees shall, from time to time, distribute ratably among the
Outstanding Shares of each series such proportion of the net profits, surplus
(including paid-in surplus), capital, or assets of each series held by the
Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation, any type of obligation of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Outstanding Shares of a series Additional Shares of the series issuable
hereunder in such manner, at such times, and on such terms as the Trustees may
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<PAGE>
deem proper. Such distribution may be among the Outstanding Shares at the time
of declaring a distribution or among the Outstanding Shares of the series at
such later date as the Trustees shall determine. The Trustees may in their
discretion determine that, solely for the purposes of such distributions,
Outstanding Shares shall exclude Shares of a series for which orders have been
placed subsequent to a specified time on the date of distribution. The Trustees
may always retain from the net profits of a series of the Trust such amount as
they may deem necessary to pay the debts or expenses of the series or to meet
the obligations of the series, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of the
business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans, or other plans as the Trustees
shall deem appropriate.
Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books of the Trust,
the above provisions shall be interpreted to give the Trustees the power in
their discretion to distribute for any fiscal year as ordinary dividends and as
capital gain distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
SECTION 8.3 - DETERMINATION OF NET INCOME.
The Trustees shall have the power to determine the net income of each
series of the Trust and from time to time to distribute such net income ratably
among the Shareholders of each series as dividends in cash or additional Shares
issuable hereunder. The determination of net income and the resultant
declaration of dividends shall be as set forth in the Prospectus. The Trustees
shall have full discretion to determine whether any cash or property received by
a series shall be treated as income or as principal and whether any item of
expense shall be charged to the income or the principal account, and their
determination made in good faith shall be conclusive upon the Shareholders of
each series. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much, if any, of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
SECTION 8.4 - POWER TO MODIFY FOREGOING PROCEDURES.
Notwithstanding any of the foregoing provisions of this Article VIII,
the Trustees may prescribe, in their absolute discretion, such other basis and
time for determining the per share net asset value of the Trust's Shares or net
income, or the declaration and payment of dividends and distributions as they
may deem necessary or desirable.
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<PAGE>
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS; ETC.
SECTION 9.1 - DURATION.
The Trust shall continue without limitation of time, subject to the
provisions of this Article IX.
SECTION 9.2 - TERMINATION OF TRUST.
(a) the Trust may be terminated by the affirmative vote of a
majority of the Shares Outstanding and entitled to vote, at any meeting of
Shareholders or by an instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of not less than a
majority of such Shares. Upon the termination of the Trust,
(i) the Trust shall carry on no business except for the purpose
of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up,
including, without limitation, the power to fulfill or discharge the
contracts of the Trust, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining Trust
Property to one or more Persons at public or private sale for consideration
which may consist in whole or in part of cash, Securities, or other
property of any kind, to discharge or pay its liabilities, and do all other
acts appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof; and
(iii) after paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary, the Trustees may distribute
the remaining Trust Property, if any, in cash or in kind or partly in each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust as instrument in writing setting
forth the fact of such termination, and the Trustees shall thereupon be
discharged from all further duties hereunder, and the rights and interests
of all Shareholders shall thereupon cease.
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<PAGE>
SECTION 9.3 - AMENDMENT PROCEDURE.
(a) This Declaration may be amended by a vote of a majority of
the Shares Outstanding and entitled to vote or by any instrument in
writing, without a meeting, signed by a majority of the Trustees and
consented to by the holders of a majority of the Shares Outstanding and
entitled to vote. The Trustees may also amend this Declaration without the
vote or consent of Shareholders, if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations
or the requirements of the regulated investment company provisions of the
Internal Revenue Code, but the Trustees shall not be held liable for
failing to do so;
(b) No amendment may be made under this Section 9.3 that would
change any rights with respect to any Shares of the Trust by reducing the
amount payable upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the
affirmative vote of a majority of the Shares Outstanding and entitled to
vote. Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officer, employees and agents of the Trust or to
permit assessments upon Shareholders; and
(c) A certificate signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration,
as amended, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged in the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares shall have become effective, this
Declaration may be terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4 - MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Trust may merge or consolidate with any other Person or may sell,
lease or exchange all or substantially all of the property of any or all of the
series, including its goodwill, if any, upon such terms and conditions and for
such consideration when and as authorized, at any meeting of Shareholders called
for that purpose, by the affirmative vote of the holders of not less than two-
thirds of the Shares Outstanding and entitled to vote, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of the Shares outstanding and entitled to vote or by such
other vote as may be established by the Trustees with respect to any series or
class of Shares; provided, however, that if such merger, consolidation, sale,
lease or exchange is recommended by the Trustees, a majority Shareholder vote
shall be sufficient authorization; and any such merger, consolidation, sale,
lease or exchange shall be deemed for all purposes to have been accomplished
under and pursuant to the statutes of the Commonwealth of Massachusetts.
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<PAGE>
SECTION 9.5 - INCORPORATION.
With the vote of a majority of the Shares Outstanding and entitled to
vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction, or any other
Trust, partnership, association or other organization to take over all or
substantially all of the Trust Property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer all or substantially all of the Trust Property to any such corporation,
Trust, association or organization in exchange for Securities thereof or
otherwise, and to lend money to, subscribe for Securities of, and enter into any
contracts with any such corporation, trust, partnership, corporation, or
organization, or any corporation, partnership, trust, association or
organization in which the Trust holds or is about to acquire Securities or any
other interest. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization to the extent not prohibited by applicable law
then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations, and selling, conveying or transferring a portion of the Trust
Property to such organization or entities.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 - FILING.
This Declaration and any amendment hereto shall be filed in the office
of the Secretary of the Commonwealth of Massachusetts and in such other places
as may be required under the laws of Massachusetts and may also be filed or
recorded in such other places as the Trustees deem appropriate. Each amendment
so filed shall be accompanied by a certificate signed and acknowledged by a
Trustee stating that such action was duly taken in a manner provided herein, and
unless such amendment or such certificate sets forth some later time for the
effectiveness of such amendment, such amendment shall be effective upon its
filing. A restated Declaration, integrating into a single instrument all of the
provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of the Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
SECTION 10.2 - GOVERNING LAW.
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the laws thereof, and the
rights of all parties and the validity and
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<PAGE>
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
SECTION 10.3 - COUNTERPARTS.
This Declaration may be simultaneously executed in several
counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
SECTION 10.4 - RELIANCE BY THIRD PARTIES.
Any certificate executed by an individual who, according to the
records of the Trust appears to be a Trustee hereunder or an officer of the
Trust appointed by the Trustees, certifying to:
(a) The number or identity of Trustees or Shareholders or agents
or employees;
(b) The due authorization of the execution of any instrument in
writing;
(c) The form of any vote passed at a meeting of Trustees or
committees thereof or Shareholders';
(d) The fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the
requirements of this Declaration;
(e) The form of any By-Laws adopted by, or the identity of, any
officers, Trustees, agents or employees; or
(f) The existence of any fact or facts which in any manner
relate to the affairs of the Trust:
shall be conclusive evidence as to the matters so certified in favor of any
person dealing with the Trustees or their successors of the Trust.
SECTION 10.5 - PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable and, if
the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Internal Revenue Code or with other applicable
laws and regulations, the conflicting provision shall be deemed never to
have constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior
to such determination; and
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<PAGE>
(b) If any provision of this Declaration shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in
any manner affect such provision in any other jurisdiction or any other
provision of this Declaration in any jurisdiction.
SECTION 10.6 - INDEX AND HEADING FOR REFERENCE ONLY.
The index and headings preceding the text, articles and sections
hereof have been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this Declaration.
SECTION 10.7 - PRINCIPAL OFFICE AND RESIDENT AGENT
The principal office of this Trust shall be established and maintained
c/o Prentice Hall Legal and Financial Services, 84 State Street, Boston,
Massachusetts, 02109, and the resident agent of this Trust shall be Prentice
Hall Legal and Financial Services.
IN WITNESS WHEREOF, the undersigned, being the initial Trustees of the
Trust, have executed this instrument the day and date first written.
/s/ Robert M. Zakem
- ---------------------------
Robert M. Zakem, as Trustee
and not individually
733 Third Avenue, 3rd Floor
New York, NY 10017-3204
* * *
County of New York )
) ss:
State of New York )
There personally appeared before me, the above named Robert M. Zakem who
acknowledged the foregoing instrument to be his free act and deed this 10th
day of October, 1995.
/s/ Hilary R. Kastleman
- ------------------------
Notary Public
My Commission expires: April 17, 1997
-----------------
[Notary Seal]
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<PAGE>
/s/ Susan L. Harris
- ---------------------------
Susan L. Harris, as Trustee
and not individually
1 SunAmerica Center, Century City
Los Angeles, CA 90067-6022
* * *
County of Los Angeles )
) ss:
State of California )
There personally appeared before me, the above named Susan L. Harris who
acknowledged the foregoing instrument to be her free act and deed this 9th day
of October, 1995.
/s/ Virginia N. Puzon [Notary Seal]
- -----------------------
Notary Public
My Commission expires: May 11, 1996
--------------
* * *
/s/ Jeremiah J. Bresnahan
- ----------------------------------
Jeremiah J. Bresnahan, as Trustee
and not individually
c/o Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110
* * *
County of Suffolk )
) ss:
Commonwealth of Massachusetts )
There personally appeared before me, the above named Jeremiah J. Bresnahan
who acknowledged the foregoing instrument to be his free act and deed this 11th
day of October, 1995.
/s/ Christine M. DiFranco
- -------------------------
Notary Public
My Commission expires: August 3, 2001
--------------
[Notary Seal]
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<PAGE>
BY-LAWS
OF
SEASONS SERIES TRUST
<PAGE>
BY-LAWS
OF
SEASONS SERIES TRUST
INDEX
Section and Title Page
- ----------------- ----
Article I. SHAREHOLDERS 1
1.01 Annual Meetings. . . . . . . . . . . . . . . . . . . . . . 1
1.02 Special Meetings . . . . . . . . . . . . . . . . . . . . . 1
1.03 Place of Meetings. . . . . . . . . . . . . . . . . . . . . 1
1.04 Notice of Meetings . . . . . . . . . . . . . . . . . . . . 1
1.05 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.06 Votes Required . . . . . . . . . . . . . . . . . . . . . . 2
1.07 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.08 List of Shareholders . . . . . . . . . . . . . . . . . . . 2
1.09 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Action by Shareholders Other than at a Meeting . . . . . . 3
Article II. BOARD OF TRUSTEES 3
2.01 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.02 Number of Trustees . . . . . . . . . . . . . . . . . . . . 3
2.03 Regular Meetings . . . . . . . . . . . . . . . . . . . . . 3
2.04 Special Meetings . . . . . . . . . . . . . . . . . . . . . 4
2.05 Notice of Meetings . . . . . . . . . . . . . . . . . . . . 4
2.06 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.07 Compensation and Expenses. . . . . . . . . . . . . . . . . 4
2.08 Action by Trustees Other than at a Meeting . . . . . . . . 4
2.09 Committees . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Holding of Meetings by Conference Telephone Call . . . . . 5
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<PAGE>
Section and Title Page
- ----------------- ----
Article III. OFFICERS 5
3.01 Executive Officers . . . . . . . . . . . . . . . . . . . . 5
3.02 Chairman and Vice Chairman of the Board. . . . . . . . . . 5
3.03 President. . . . . . . . . . . . . . . . . . . . . . . . . 6
3.04 Vice Presidents. . . . . . . . . . . . . . . . . . . . . . 6
3.05 Secretary and Assistant Secretaries. . . . . . . . . . . . 6
3.06 Treasurer and Assistant Treasurers . . . . . . . . . . . . 6
3.07 Subordinate Officers . . . . . . . . . . . . . . . . . . . 7
3.08 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Article IV. SHARES OF BENEFICIAL INTEREST 7
4.01 Certificates . . . . . . . . . . . . . . . . . . . . . . . 7
4.02 Record Dates . . . . . . . . . . . . . . . . . . . . . . . 8
Article V. GENERAL PROVISIONS 8
5.01 Checks . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.02 Custodian. . . . . . . . . . . . . . . . . . . . . . . . . 8
5.03 Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.04 Inspection of Records. . . . . . . . . . . . . . . . . . . 9
5.05 Representation of Shares . . . . . . . . . . . . . . . . . 9
5.06 Offices of the Trust . . . . . . . . . . . . . . . . . . . 9
Article VI. INDEMNIFICATION 9
Article VII. AMENDMENT OF BY-LAWS 10
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<PAGE>
BY-LAWS
OF
SEASONS SERIES TRUST
ARTICLE I
SHAREHOLDERS
SECTION 1.01. ANNUAL MEETINGS. Unless otherwise required by law, the
Declaration of Trust as amended from time to time (the "Declaration") or by
these By-Laws, the Trust shall not be required to hold an annual meeting of
Shareholders unless the Board of Trustees determines to hold an annual meeting.
If the Board makes such a determination, the annual meeting of Shareholders
shall be held at such date and time as may be designated from time to time by
the Board for the election of Trustees and the transaction of any business
within the powers of the Trust. Such business as is specifically required by
statute or by the Declaration to be stated in the notice must be so stated.
Failure to hold an annual meeting at the designated time shall not, however,
invalidate the existence of the Trust nor affect otherwise valid acts of the
Trust.
SECTION 1.02. SPECIAL MEETINGS. Special meetings of the Shareholders may
be called any time by the Chairman of the Board of Trustees or the President, or
by a majority of the Board by vote at a meeting or in writing with or without a
meeting, or in writing by those Shareholders holding a majority of the
outstanding Shares of beneficial interest of the Trust.
SECTION 1.03. PLACE OF MEETINGS. Meetings of the Shareholders for the
election of Trustees shall be held at such place either within or without the
Commonwealth of Massachusetts as shall be designated from time to time by the
Board of Trustees and stated in the notice of the meeting. Meetings of
Shareholders for any other purpose may be held at such time and place, within or
without the Commonwealth of Massachusetts, as shall be stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
SECTION 1.04. NOTICE OF MEETINGS. Not less than ten days nor more than 90
days before the date of any Shareholders' meeting, the Secretary shall give to
each Shareholder entitled to vote at such meeting, written or printed notice
stating the time and place of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, either by mail or by
presenting it to the Shareholder personally or by leaving it at the
Shareholder's residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the Shareholder at his post office address as it appears on the records of
the Trust, with postage thereon prepaid. Notwithstanding the foregoing
provision, a waiver of notice in writing, signed by the Person or Persons
entitled to such notice and filed with the records of the
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meeting, whether before or after the holding thereof, or actual attendance at
the meeting in person or by proxy, shall be deemed equivalent to the giving of
such notice to such Persons. Any meeting of Shareholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
no notice need be given of any such adjourned meeting other than by announcement
at the meeting.
SECTION 1.05. QUORUM. At any meeting of Shareholders the presence in
person or by proxy of Shareholders entitled to cast a majority of the votes
thereat shall constitute a quorum; but this Section shall not affect any
requirement under statute or under the Declaration for the vote necessary for
the adoption of any measure. In the absence of a quorum the Shareholders
present in person or by proxy, by majority vote and without notice, may adjourn
the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 1.06. VOTES REQUIRED. A majority of the votes cast at a meeting
of Shareholders, duly called and at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting, unless more than a majority of votes cast is required by
statute or by the Declaration.
SECTION 1.07. PROXIES. A Shareholder may vote the Shares owned of record
by him either in person or by proxy executed in writing by the Shareholder or by
the Shareholder's duly authorized attorney-in-fact. No proxy shall be valid
after eleven months from its date, unless otherwise provided in the proxy.
Every proxy shall be in writing, subscribed by the Shareholder or the
Shareholder's duly authorized attorney, and dated, but need not be sealed,
witnessed or acknowledged.
SECTION 1.08. LIST OF SHAREHOLDERS. At each meeting of Shareholders, a
full, true and complete list in alphabetical order of all Shareholders entitled
to vote at such meeting, certifying the number of Shares held by each, shall be
made available by the Secretary.
SECTION 1.09. VOTING. In all elections for Trustees every Shareholder
shall have the right to vote, in person or by proxy, the Shares owned of record
by the Shareholder, for as many Persons as there are Trustees to be elected and
for whose election the Shareholder has a right to vote. At all meetings of
Shareholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions regarding the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the Chairman of the meeting. If demanded by Shareholders,
present in person or by proxy, entitled to cast 10% in number of votes, or if
ordered by the Chairman, the vote upon election or question shall be taken by
ballot. Upon like demand or order, the voting shall be conducted by two
inspectors in which event the proxies and ballots shall be received, and all
questions regarding the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
Unless so demanded or ordered, no vote need be by ballot, and voting need not
be conducted by inspectors. Inspectors may be elected by the Shareholders at a
meeting of shareholders, to serve until the close of the next meeting of
shareholders. In case of a failure to elect inspectors, or in case an inspector
shall fail to
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attend, or refuse or be unable to serve, the Shareholders at any meeting may
choose an inspector or inspectors to act at such meeting, and in default of such
election the Chairman of the meeting may appoint an inspector or inspectors.
SECTION 1.10. ACTION BY SHAREHOLDERS OTHER THAN AT A MEETING. Any action
required or permitted to be taken at any meeting of Shareholders may be taken
without a meeting, if a consent in writing, setting forth such action, is signed
by all the Shareholders entitled to vote on the subject matter thereof and any
other Shareholders entitled to notice of a meeting of Shareholders (but not to
vote thereat) have waived in writing any rights which they may have to dissent
from such action, and such consent and waiver are filed with the records of the
Trust.
ARTICLE II
BOARD OF TRUSTEES
SECTION 2.01. POWERS. The Board may exercise all the powers of the Trust,
except such as are by statute, the Declaration, or these By-Laws conferred upon
or reserved to the Shareholders. The Board shall keep full and fair accounts of
its transactions.
SECTION 2.02. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees; provided, however, the number of Trustees shall in no
event be reduced to less than three by such an instrument. The tenure of office
of a Trustee shall not be affected by any decrease in the number of Trustees
made by the Board.
SECTION 2.03. REGULAR MEETINGS. After any meeting of Shareholders at
which a Board of Trustees shall have been elected, the Board so elected shall
meet as soon as practicable for the purpose of organization and the transaction
of other business. No notice of such first meeting shall be necessary if held
immediately after the adjournment, and at the site, of such meeting of
Shareholders. Other regular meetings of the Board shall be held on such dates
and at such places within or without the Commonwealth of Massachusetts as may be
designated from time to time by the Board.
SECTION 2.04. SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board, the President or the Secretary
of the Trust, or by a majority of the Board by vote at a meeting, or in writing
with or without a meeting. Such special meetings shall be held at such place or
places within or without the Commonwealth of Massachusetts as may be designated
from time to time by the Board. In the absence of such designation, such
meetings shall be held at such places as may be designated in the calls.
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SECTION 2.05. NOTICE OF MEETINGS. Except as provided in Section 2.03,
notice of the place, day and hour of every regular and special meeting of the
Board of Trustees shall be given to each Trustee two days (or more) before the
meeting, by delivering the same personally, or by sending the same by telegraph,
or by leaving the same at the Trustee's residence or usual place of business,
or, in the alternative, by mailing such notice three days (or more) before the
meeting, postage prepaid, and addressed to the Trustee at the Trustee's last
known business or residence post office address, according to the records of the
Trust. Unless required by these By-Laws or by resolution of the Board, no
notice of any meeting of the Board need state the business to be transacted
thereat. No notice of any meeting of the Board need be given to any Trustee who
attends, or to any Trustee who in writing executed and filed with the records of
the meeting either before or after the holding thereof, waives such notice. Any
meeting of the Board, regular or special, may adjourn from time to time to
reconvene at the same or some other place, and no notice need be given of any
such adjourned meeting other than by announcement at the adjourned meeting.
SECTION 2.06. QUORUM. At all meetings of the Board, one-third of the
entire Board (but in no event fewer than two trustees) shall constitute a quorum
for the transaction of business. Except in cases in which it is by statute, by
the Declaration or by these By-Laws otherwise provided, the vote of a majority
of such quorum at a duly constituted meeting shall be sufficient to elect and
pass any measure. In the absence of a quorum, the trustees present by majority
vote and without notice other than by announcement at the meeting may adjourn
the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
SECTION 2.07. COMPENSATION AND EXPENSES. Trustees may, pursuant to
resolution of the Board, be paid fees for their services, which fees may consist
of an annual fee or retainer and/or fixed fee for attendance at meetings. In
addition, Trustees may in the same manner be reimbursed for expenses incurred in
connection with their attendance at meetings or otherwise in performing their
duties as Trustees. Members of committees may be allowed like compensation and
reimbursement. Nothing herein contained shall preclude any Trustee from serving
the Trust in any other capacity and receiving compensation therefor.
SECTION 2.08. ACTION BY TRUSTEES OTHER THAN AT A MEETING. Unless
otherwise required by law, any action required or permitted to be taken at any
meeting of the Board, or of any committee thereof, may be taken without a
meeting, if a written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 2.09. COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of two or more of the Trustees. The Board may designate one or more
Trustees as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution, shall have and may exercise the powers of the
Board in the management of the business and affairs of the Trust, provided,
however, that in the absence or
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disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board. Each committee
shall keep regular minutes of its meetings and report the same to the Board when
required.
SECTION 2.10. HOLDING OF MEETINGS BY CONFERENCE TELEPHONE CALL. At any
regular or special meeting of the Board or any committee thereof, members
thereof may participate in such a meeting by means of conference telephone or
similar communications equipment by which all Persons participating in the
meeting can hear each other. Unless otherwise required by law or regulations,
participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
ARTICLE III
OFFICERS
SECTION 3.01. EXECUTIVE OFFICERS. The Board of Trustees shall choose a
President and may choose a Chairman of the Board and a Vice Chairman of the
Board from among the Trustees, and shall choose a Secretary and a Treasurer who
need not be Trustees. The Board of Trustees shall designate as principal
executive officer of the Trust either the Chairman of the Board, the Vice
Chairman, or the President. The Board of Trustees may choose an Executive Vice
President, one or more Senior Vice Presidents, one or more Vice-Presidents, one
or more Assistant Secretaries and one or more Assistant Treasurers, none of whom
need be a Trustee. Any two or more of the above-mentioned offices, except those
of President and a Vice-President, may be held by the same Person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument be required by law, by the Declaration of Trust, by
the By-Laws or by resolution of the Board of Trustees to be executed by any two
or more officers. Each such officer shall hold office until his successor shall
have been duly chosen and qualified, or until he shall have resigned or shall
have been removed. Any vacancy in any of the above offices may be filled for
the unexpired portion of the term of the Board of Trustees at any regular or
special meeting.
SECTION 3.02. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman of
the Board, if one be elected, shall preside at all meetings of the Board of
Trustees and of the Shareholders at which he is present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board of
Trustees. The Vice Chairman of the Board, if one be elected, shall, when
present and in the absence of the Chairman of the Board, preside at all meetings
of the Shareholders and Trustees, and he shall perform such other duties as may
from time to time be assigned to him by the Board of Trustees or as may be
required by law.
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SECTION 3.03. PRESIDENT. In the absence of the Chairman or Vice Chairman
of the Board, the President shall preside at all meetings of the Shareholders
and of the Board at which the President is present; and in general, shall
perform all duties incident to the office of a president of a Trust, and such
other duties, as from time to time, may be assigned to him by the Board.
SECTION 3.04. VICE PRESIDENTS. The Vice President or Vice Presidents,
including any Executive or Senior Vice Presidents, at the request of the
President, in the President's absence or during the President's inability or
refusal to act, shall perform the duties and exercise the functions of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice President, the Board may determine which one or more of
the Vice Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board, the President may
make such determination. The Vice President or Vice Presidents shall have such
other powers and perform such other duties as may be assigned by the Board, the
Chairman of the Board, or the President.
SECTION 3.05. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall:
keep the minutes of the meetings of Shareholders, of the Board and of any
committees, in books provided for that purpose; see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by law;
be custodian of the records of the Trust; see that the seal of the Trust is
affixed to all documents the execution of which, on behalf of the Trust, under
its seal, is duly authorized, and when so affixed may attest the same; and in
general perform all duties incident to the office of a secretary of a Trust, and
such other duties as, from time to time, may be assigned to him by the Board,
the Chairman of the Board, or the President.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board, the President or the Chairman
of the Board, shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
SECTION 3.06. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall:
have charge of and be responsible for all funds, securities, receipts and
disbursements of the Trust, all moneys or other valuable effects in such banks,
trust companies or other depositories as shall, from time to time, be selected
by the Board in accordance with Section 5.02 of these By-Laws; render to the
President, the Chairman of the Board and to the Board, whenever requested, an
account of the financial condition of the Trust; and in general, perform all the
duties incident to the office of a treasurer of a Trust, and such other duties
as may be assigned to him by the Board, the President or the Chairman of the
Board.
The Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board, the President, or the Chairman
of the Board shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and
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exercise the powers of the Treasurer and shall perform other duties and have
such other powers as the Board may from time to time prescribe.
SECTION 3.07. SUBORDINATE OFFICERS. The Board may from time to time
appoint such subordinate officers as it may deem desirable. Each such officer
shall hold office for such period and perform such duties as the Board, the
President or the Chairman of the Board may prescribe. The Board may, from time
to time, authorize any committee or officer to appoint and remove subordinate
officers and prescribe the duties thereof.
SECTION 3.08. REMOVAL. Any officer or agent of the Trust may be removed
by the Board whenever, in its judgment, the best interests of the Trust will be
served thereby, but such removal shall be without prejudice to the contractual
rights, if any, of the Person so removed.
ARTICLE IV
SHARES OF BENEFICIAL INTEREST
SECTION 4.01. CERTIFICATES. The Trust does not presently intend to issue
certificates for shares of beneficial interest. If, however, the Board
authorizes the issuance of certificates representing shares of beneficial
interest, such certificates shall be signed by the President, the Chairman of
the Board or a Vice President and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and sealed with the seal
of the Trust. The signatures may be either manual or facsimile signatures and
the seal may be either facsimile or any other form of seal. In no event shall
certificates be issued for fractional Shares. Such certificates shall be in
such form, not inconsistent with law or with the Declaration, as shall be
approved by the Board. In case any officer of the Trust who has signed any
certificate ceases to be an officer of the Trust, whether because of death,
resignation or otherwise, before such certificate is issued, the certificate may
nevertheless be issued and delivered by the Trust as if the officer had not
ceased to be such officer as of the date of its issue. Certificates need not be
issued except to Shareholders who request such issuance in writing.
The Board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Trust alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the Person claiming the certificate to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or such
owner's legal representative, to advertise the same in such manner as it shall
require and/or to give the Trust a bond in such sum as it may direct as
indemnity against any claim that may be made against the Trust with respect to
the certificate alleged to have been lost, stolen or destroyed.
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SECTION 4.02. RECORD DATES. The Board is hereby empowered to fix, in
advance, a date as the record date for the purpose of determining Shareholders
entitled to notice of, or to vote at, any meeting of Shareholders, or
Shareholders entitled to receive payment of any dividend, capital gains
distribution or the allotment of any rights, or in order to make a determination
of Shareholders for any other proper purpose. Such date in any case shall be
not more than 60 days, and in case of a meeting of Shareholders, not less than
ten days, prior to the date on which the particular action, requiring such
determination of Shareholders, is to be taken.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.01. CHECKS. All checks or demands for money and notes of the
Trust shall be signed by such officer or officers or such other person or
persons as the Board may from time to time designate.
SECTION 5.02. CUSTODIAN. All Securities and cash of the Trust shall be
placed in the custody of a bank or trust company ("Custodian") having (according
to its last published report) not less than $2,000,000 aggregate capital,
surplus and undivided profits, provided such a Custodian can be found ready and
willing to act (or maintained in such other manner as is consistent with Section
17(f) of the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder). The Trust shall enter into a written contract with the
Custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and Securities of the Trust held by the Board of Trustees of
the Trust. The Trust shall, upon the resignation or inability to serve of the
Custodian, use its best efforts to obtain a successor Custodian; require that
the cash and Securities owned by the Trust be delivered directly to the
successor Custodian; and in the event that no successor Custodian can be found,
submit to the Shareholders, before permitting delivery of the cash and
Securities owned by the Trust to other than a successor Custodian, the question
whether or not the Trust shall be liquidated or shall function without a
Custodian.
The Trustees may direct the Custodian to deposit all or any part of the
Securities owned by the Trust in a system for the central handling of Securities
established by a national Securities exchange or a national Securities
association registered with the Securities and Exchange Commission, or otherwise
in accordance with applicable law, pursuant to which system all Securities of
any particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such Securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust.
The Trustees may direct the Custodian to accept written receipts or other
written evidence indicating purchases of Securities held in book-entry form in
the Federal Reserve System in
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accordance with regulations promulgated by the Board of Governors of the Federal
Reserve System and the local Federal Reserve Banks in lieu of receipt of
certificates representing such Securities.
SECTION 5.03. BONDS. The Board may require any officer, agent or employee
of the Trust to give a bond to the Trust, conditioned upon the faithful
discharge of such Person's duties, with one or more sureties and in such amount
as may be satisfactory to the Board.
SECTION 5.04. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
Shareholders of a Massachusetts business corporation.
SECTION 5.05. REPRESENTATION OF SHARES. Any officer of the Trust is
authorized to vote, represent and exercise any and all rights incident to any
Shares of any corporation or other business enterprise owned by the Trust.
SECTION 5.06. OFFICES OF THE TRUST. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk. The principal executive office of the
Trust is hereby fixed and located at 1 SunAmerica Center, Century City, Los
Angeles, California, 90067. The Trustees are granted full power and authority
to change from time to time the respective locations of said principal and
principal executive offices. Any such change shall be noted in the By-Laws
opposite this Section, or this Section may be amended to state the new location.
Branch or subordinate offices may be established at any time by the Trustees at
any place or places.
ARTICLE VI
INDEMNIFICATION
The Trust shall provide any indemnification required by applicable law and
shall indemnify directors, officers, agents and employees as follows:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the Trust) by reason of
the fact that such Person is or was such Trustee or officer or an employee or
agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such Person in connection with such action, suit or proceeding,
provided such Person acted in good faith and in a manner such Person reasonably
believed to be in or not opposed to the best interests of the Trust, and, with
respect to any criminal action or proceeding, had no reasonable
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cause to believe such Person's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Person did not reasonably believe his or her actions to be
in or not opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
Person's conduct was unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a judgment
in its favor by reason of the fact that such Person is or was such Trustee or
officer or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, Trust or other enterprise, against
expenses (including attorneys' fees), actually and reasonably incurred by such
Person in connection with the defense or settlement of such action or suit if
such Person acted in good faith and in a manner such Person reasonably believed
to be in or not opposed to the best interests of the Trust, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such Person shall have been adjudged to be liable for negligence or
misconduct in the performance of such Person's duty to the Trust unless and
only to the extent that the court in which such action or suit was brought, or
any other court having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such Person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subparagraphs (a) or (b) above or in defense of any
claim, issue or matter therein, such Person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
Person in connection therewith, without the necessity for the determination as
to the standard of conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon a
determination that indemnification of the Trustee or officer is proper in view
of the standard of conduct set forth in subparagraph (a) or (b). Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Trustees who were disinterested and not parties to such action,
suit or proceedings, or (ii) if such a quorum of disinterested Trustees so
directs, by independent legal counsel in a written opinion; and any
determination so made shall be conclusive and binding upon all parties.
(e) Expenses incurred in defending a civil or criminal action, writ or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such amount
unless it shall ultimately be determined that such Person is entitled to be
indemnified by the Trust as authorized herein. Such determination must be made
by disinterested Trustees or independent legal counsel. Prior to any payment
being made pursuant to this paragraph, a majority
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of a quorum of the disinterested, non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
(f) Agents and employees of the Trust who are not Trustees or officers of
the Trust may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled and
shall continue as to a Person who has ceased to be a Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
Person.
(h) Nothing in the Declaration or in these By-Laws shall be deemed to
protect any Trustee or officer of the Trust against any liability to the Trust
or to its Shareholders to which such Person would otherwise be subject by reason
of willful malfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office.
(i) The Trust shall have power to purchase and maintain insurance on
behalf of any Person against any liability asserted against or incurred by such
Person, whether or not the Trust would have the power to indemnify such Person
against such liability under the provisions of this Article. Nevertheless,
insurance will not be purchased or maintained by the Trust if the purchase or
maintenance of such insurance would result in the indemnification of any Person
in contravention of any rule or regulation and/or interpretation of the
Securities and Exchange Commission.
ARTICLE VII
AMENDMENT OF BY-LAWS
These By-Laws of the Trust may be altered, amended, added to or repealed by
a majority of the Shareholders or by majority vote of the entire Board.
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