<PAGE>
As filed with the Securities and Exchange Commission on July 24, 1998
File Nos. 333-8653 and 811-07725
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 / /
Pre-Effective Amendment No.
/ /
POST-EFFECTIVE AMENDMENT NO. 2
X
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / /
AMENDMENT NO. 4 X
(Check appropriate box or boxes)
SEASONS SERIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1 SunAmerica Center
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, Esq.
Senior Vice President and General Counsel
The SunAmerica Center
SunAmerica Asset Management Corp.
733 Third Avenue - 3rd Floor
New York, NY 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
Susan L. Harris, Esq. Margery K. Neale, Esq.
SunAmerica Inc. Shereff, Friedman,
Hoffman, &
Goodman, LLP
1 SunAmerica Center 919 Third Avenue
Los Angeles, CA 90067-6022 New York, NY 10022
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/ / immediately upon filing X on July 28, 1998 pursuant to
pursuant to paragraph (b) of Rule 485 paragraph (b) of Rule 485
/ / 60 days after filing pursuant to / / on (date) pursuant to paragraph
paragraph (a) of Rule 485 (a) of Rule 485
------------------------
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<PAGE>
SEASONS SERIES TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(b)
Under the Securities Act of 1933
PART A
Item No. Registration Statement Caption Caption In Prospectus
- -------- ------------------------------ ---------------------
1 Cover Page Cover Page
2 Synopsis *
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant The Trust; Investment
Objectives, Policies and
Restrictions; Investment
Techniques and Risk
Factors; General Information
5 Management of the Fund Management
5A Management's Discussion of Fund
Performance *
6 Capital Stock and Other Dividends, Distributions and
Securities Federal Taxes
7 Purchase of Securities Being Purchases and Redemptions;
Price of Shares
8 Redemption or Repurchase Purchases and Redemption
9 Pending Legal Proceedings *
PART B Caption In Statement
Item No. Registration Statement Caption of Additional Information
- ------- ------------------------------ -------------------------
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and History The Trust
13 Investment Objectives and Investment Objectives and
Policies Policies;Investment
Restrictions; Portfolio
Turnover; Appendix
14 Management of the Fund Trust Officers and Trustees
15 Contact Persons and Principal The Trust
Holders of Securities
16 Investment Advisory and Other Investment Advisory and
Services Management Agreement;
Subadvisory Agreements;
General Information
17 Brokerage Allocation and Other Execution of Portfolio
Practices Transactions
18 Capital Stock and Other Securities *
19 Purchase, Redemption and Pricing Price of Shares
of Securities Being Offered
20 Tax Status Dividends, Distributions and
Federal Taxes
21 Underwriters *
22 Calculation of Performance Data *
23 Financial Statements Financial Statements
PART C
The information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
[LOGO]
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 six 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 ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO seeks capital appreciation.
The 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 (such as preferred stocks, warrants or fixed income securities
convertible into common stock), 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 manages 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 are 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 insurance 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 the Contract prospectus for information regarding
Contract fees and expenses and any restrictions or limitations.
This Prospectus explains concisely the information a prospective investor should
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.
Further information about the performance of the Portfolios is contained in the
Trust's Annual Report to Shareholders. The Statement of Additional Information
and Annual Report may be obtained upon request and without charge by writing to
the Trust at the above address or by calling (800)-445-7862. Information about
the Trust (including the Statement of Additional Information) can be reviewed
and copied at the Securities and Exchange Commission's ("SEC") Public Reference
Room in Washington, D.C. Information on the operation of the public reference
room may be obtained by calling the SEC at (800) SEC-0330. Reports and other
information about the Trust are available on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated July 28, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Highlights................................................................................................ 3
The Trust........................................................................................................... 4
Investment Objectives, Policies and Restrictions.................................................................... 4
Multi-Managed Portfolios............................................................................................ 5
Asset Allocation: Diversified Growth Portfolio...................................................................... 8
Stock Portfolio..................................................................................................... 8
Investment Techniques and Risk Factors.............................................................................. 9
Management.......................................................................................................... 17
Portfolio Turnover and Brokerage.................................................................................... 20
Dividends, Distributions and Federal Taxes.......................................................................... 21
Price of Shares..................................................................................................... 21
Purchases and Redemptions........................................................................................... 21
Shareholder Voting Rights........................................................................................... 22
Independent Accountants and Legal Counsel........................................................................... 23
General Information................................................................................................. 23
Inquiries........................................................................................................... 23
</TABLE>
2
<PAGE>
FINANCIAL HIGHLIGHTS
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The following Financial Highlights for the period April 15, 1997 (commencement
of operations) through March 31, 1998 have been audited by
PricewaterhouseCoopers LLP (successor firm to Price Waterhouse LLP), the Trust's
independent accountants, whose report on the financial statements containing
such information is included in the Trust's Annual Report to Shareholders. These
Financial Highlights should be read in conjunction with the financial statements
and notes thereto, which are included in the Statement of Additional Information
and are incorporated by reference herein.
<TABLE>
<CAPTION>
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DIVIDENDS
DECLARED DIVIDENDS NET NET
NET ASSET NET REALIZED & FROM NET FROM NET ASSET ASSETS
VALUE NET UNREALIZED TOTAL FROM INVEST- REALIZED VALUE END OF
PERIOD BEGINNING INVESTMENT GAIN(LOSS) ON INVESTMENT MENT GAIN ON END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN(3) (000'S)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi-Managed Growth Portfolio
4/15/97-
3/31/98 $10.00 $0.18 $2.95 $3.13 $(0.08) $(0.20) $12.85 31.55% $32,481
Multi-Managed Moderate Growth Portfolio
4/15/97-
3/31/98 10.00 0.27 2.40 2.67 (0.13) (0.17) 12.37 26.86 32,622
Multi-Managed Income/Equity Portfolio
4/15/97-
3/31/98 10.00 0.41 1.68 2.09 (0.20) (0.10) 11.79 21.10 25,957
Multi-Managed Income Portfolio
4/15/97-
3/31/98 10.00 0.51 1.15 1.66 (0.27) (0.10) 11.29 16.81 18,378
Asset Allocation: Diversified Growth Portfolio
4/15/97-
3/31/98 10.00 0.23 1.76 1.99 (0.12) (0.16) 11.71 20.09 50,384
Stock Portfolio
4/15/97-
3/31/98 10.00 0.03 4.80 4.83 (0.02) (0.15) 14.66 48.59 42,085
<CAPTION>
- ----------
---------------------------------------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET PORTFOLIO
ENDED ASSETS(4)(5) ASSETS(4)(5) TURNOVER
- ----------
---------------------------------------
<S> <C> <C> <C>
Multi-Managed Growth Portfolio
4/15/97-
3/31/98 1.29% 1.52% 114%
Multi-Managed Moderate Growth Portfolio
4/15/97-
3/31/98 1.21 2.36 101
Multi-Managed Income/Equity Portfolio
4/15/97-
3/31/98 1.14 3.72 46
Multi-Managed Income Portfolio
4/15/97-
3/31/98 1.06 4.69 47
Asset Allocation: Diversified Growth
Portfolio
4/15/97-
3/31/98 1.21 2.06 166
Stock Portfolio
4/15/97-
3/31/98 1.21 0.24 46
</TABLE>
- ----------------------------------
(1) Calculated based upon average shares outstanding
(2) After fee waivers and expense reimbursements by the investment adviser
(3) Total return is not annualized and does not reflect expenses that apply to
the separate accounts of Anchor National Life Insurance Company. If such
expenses had been included, total return would have been lower.
(4) Annualized
(5) During the period April 15, 1997 (commencement of operations) through March
31, 1998, the investment adviser waived a portion of or all fees and assumed
a portion of or all expenses for the Portfolios. If all fees and expenses
had been incurred by the Portfolios, the ratio of expenses to average net
assets and the ratio of net investment income to average net assets would
have been as follows:
<TABLE>
<CAPTION>
EXPENSES(4) NET INVESTMENT INCOME(4)
------------ -------------------------
<S> <C> <C>
Multi-Managed Growth Portfolio................ 1.44% 1.37%
Multi-Managed Moderate Growth Portfolio....... 1.40 2.17
Multi-Managed Income/Equity Portfolio......... 1.43 3.43
Multi-Managed Income Portfolio................ 1.50 4.25
Asset Allocation: Diversified Growth
Portfolio..................................... 1.53 1.74
Stock Portfolio............................... 1.26 0.19
</TABLE>
3
<PAGE>
THE TRUST
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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 Arizona.
The Trust currently issues six separate series of shares or Portfolios, each of
which represents a separate fully managed portfolio of securities with its own
investment objective. The Board of Trustees may establish additional series in
the future. The current Portfolios are the Multi-Managed Growth Portfolio,
Multi-Managed Moderate Growth Portfolio, Multi-Managed Income/Equity Portfolio,
Multi-Managed Income Portfolio, Asset Allocation: Diversified Growth Portfolio
and Stock Portfolio. All shares may be purchased or redeemed by the Account at
net asset value with no sales or redemption charge.
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, LLP ("WMC") both serve as
subadvisers for each of the Multi-Managed Portfolios. Janus and WMC are each
responsible for managing one particular portion of the assets (each, a "Managed
Component" or "component") of each of the Multi-Managed Portfolios, subject to
the supervision of SunAmerica. Putnam Investment Management, Inc. ("Putnam")
serves as subadviser for the Asset Allocation: Diversified Growth Portfolio and
is responsible for managing the Portfolio, subject to the supervision of
SunAmerica. T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as
subadviser for the Stock Portfolio and is responsible for managing the
Portfolio, subject to the supervision of SunAmerica. (Janus, WMC, Putnam and T.
Rowe Price are referred to herein individually as a "Subadviser," and
collectively as the "Subadvisers.") 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, as more fully described
below. As used herein, the term "Manager" shall mean either the Adviser and/or
the Subadviser, as the case may be.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
- --------------------------------------------------------------------------------
A description of each Portfolio's investment objective and a summary of the
investment policies of the Portfolios are set forth below. 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. Contract owners should
carefully review the investment objectives and policies of each Portfolio and
consider their ability to assume the risks involved before making an investment
in a Portfolio. For a more detailed description of the characteristics and risks
associated with the Portfolios and the types of securities in which they invest,
see "Investment Techniques and Risk Factors."
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. 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. See
"Shareholder Voting Rights."
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
4
<PAGE>
amended (the "1940 Act")), subject, however, to certain tax diversification
requirements. 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 Rating Services, a Division of the McGraw
Hill Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps Credit Rating Co. ("Duff &
Phelps") and Thomson BankWatch, Inc. ("BankWatch"), all of which are recognized
independent securities ratings institutions. References to the particular
ratings categories of the securities in which a Portfolio may invest should be
read to include unrated securities deemed by the Manager to be of comparable
quality to the rated securities in such categories. 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
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 (such as preferred stocks, warrants or fixed income
securities convertible into common stock), corporate and U.S. government fixed
income securities, money market instruments and cash or cash equivalents. In
order to diversify the management of its assets through different market sectors
and management styles, each Multi-Managed Portfolio allocates its assets among
three or four distinct Managed Components. The four current Managed Components
are SunAmerica/Aggressive Growth, Janus/Growth, SunAmerica/Balanced and
WMC/Fixed Income. The following chart sets forth the Managed Component asset
allocation percentages for each Multi-Managed Portfolio.
<TABLE>
<CAPTION>
MANAGED COMPONENTS AS A PERCENTAGE
OF EACH MULTI-MANAGED PORTFOLIO
------------------------------------------------------------------------
SunAmerica/ SunAmerica/ WMC/ Fixed
Aggressive Growth Janus/Growth Balanced Income
PORTFOLIO component component component component
- -------------- ----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Multi-Managed
Growth
Portfolio 20% 40% 20% 20%
Multi-Managed
Moderate
Growth
Portfolio 18% 28% 18% 36%
Multi-Managed
Income/
Equity
Portfolio 0% 18% 28% 54%
Multi-Managed
Income
Portfolio 0% 8% 17% 75%
</TABLE>
The asset allocation percentages of the Multi-Managed Portfolios are based
largely on each Portfolio's investment objective. The Multi-Managed Growth and
the Multi-Managed Moderate Growth Portfolios seek long-term growth of capital
and therefore allocate a relatively larger percentage of their assets to the
SunAmerica/Aggressive Growth and Janus/Growth components than do the other two
Multi-Managed Portfolios. In contrast, the Multi-Managed Income/ Equity and the
Multi-Managed Income Portfolios focus on preservation of principal or capital
and therefore allocate a relatively larger percentage of their assets to the
SunAmerica/Balanced and WMC/Fixed Income components than do the other two
Multi-Managed Portfolios. The Multi-Managed Income/Equity and the Multi-Managed
Income Portfolios do not allocate any percentage of their assets to the
SunAmerica/Aggressive Growth component. None of the Multi-Managed Portfolios
contains an "unmanaged" component.
Investments in each Multi-Managed Portfolio (and redemption requests) are
allocated among the Managed Components of such Portfolio as described in the
percentages indicated above. The Trust expects that differences in investment
returns among the Managed Components of a Multi-Managed Portfolio will cause the
actual percentage of the Portfolio's assets allocated
5
<PAGE>
to each component to vary from the target allocation over the course of a
calendar quarter. Accordingly, the assets of each Multi-Managed Portfolio will
be reallocated or "rebalanced" among the Managed Components on at least a
quarterly basis to restore the target allocations for such Portfolio.
Although each Multi-Managed Portfolio has a distinct investment objective and
its assets 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 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 is treated as a
separate investment account by the Manager; however, the assets of each Managed
Component that comprises a particular Multi-Managed Portfolio belong to that
Portfolio. Percentage limitations contained in investment policies and
restrictions of each Multi-Managed Portfolio are applied at the time of purchase
and on a component by component basis for that Portfolio. The Adviser, however,
is ultimately responsible for overseeing compliance with respect to percentage
limitations by each Multi-Managed Portfolio as a whole, and accordingly it
verifies that in the aggregate the investments of each Multi-Managed Portfolio
comply with applicable percentage limitations. The investment policies relating
to each Managed Component are described below.
SUNAMERICA/AGGRESSIVE GROWTH COMPONENT
This component is intended to represent 20% and 18% of the assets in the
Multi-Managed Growth and Moderate Growth Portfolios, respectively. Neither the
Multi-Managed Income/Equity nor Income Portfolio has a SunAmerica/Aggressive
Growth component. In managing this component, SunAmerica generally invests 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
typically have market capitalizations of under $1 billion and have achieved, or
are expected to achieve, growth or earnings over various major business cycles.
The Adviser 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 invest 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." See also the Statement of Additional Information for a
description of securities ratings.
JANUS/GROWTH COMPONENT
This component is intended to represent 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, as Subadviser, invests
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,
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
6
<PAGE>
bonds"). Such securities may offer growth potential because of anticipated
changes in interest rates, credit standing, currency relationships or other
factors. See "Investment Techniques and Risk Factors." See also the Statement of
Additional Information for a description of securities ratings.
SUNAMERICA/BALANCED COMPONENT
This component is intended to represent 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 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 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
generally be invested in fixed income securities; however, such investments may
differ from such percentages when the Adviser believes such an adjustment in
portfolio mix to be necessary given market conditions.
WMC/FIXED INCOME COMPONENT
This component is intended to represent 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, as Subadviser, invests 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, U.S. and foreign mortgage-backed securities including
CMOs, asset-backed securities, preferred stock, 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
7
<PAGE>
than 10% of the assets of the WMC/Fixed Income component 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.
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
The Asset Allocation: Diversified Growth Portfolio seeks to achieve its
objective of capital appreciation through a strategic allocation of
approximately 80% (with a range of 65-95%) of its assets to an "equity class" of
securities and approximately 20% (with a range of 5-35%) of its assets to a
"fixed income class" of securities. The percentage limitations are applied at
the time of purchase. Putnam, as Subadviser, may also select other investments
that do not fall within these two asset classes, including cash and cash
equivalents. A significant portion of both the equity class and fixed income
class may consist of foreign securities. See "Investment Techniques and Risk
Factors."
The "equity class" consists of a diversified portfolio of equity securities that
the Subadviser believes have the potential for capital appreciation. This
includes: (i) equity securities of companies with market capitalizations of over
$1 billion that the Subadviser believes have potential for capital appreciation
due to above-average earnings growth or are undervalued at the time of purchase;
(ii) equity securities of smaller, less well-known companies; and (iii) equity
securities principally traded on foreign equity markets. In selecting equity
securities the Subadviser considers, among other things, an issuer's financial
strength, competitive position and projected future earnings and dividends.
Although common stocks are normally the main type of equity investment, the
Portfolio may also purchase preferred stocks, convertible securities, warrants
and other equity-type securities. See "Investment Techniques and Risk Factors."
The "fixed income class" consists of a diversified portfolio of fixed income
securities, including both U.S. and foreign government obligations and corporate
obligations. The Subadviser may take advantage of the entire range of fixed
income securities and may adjust the average maturity of the Portfolio's
holdings from time to time depending on its assessment of relative yields on
securities of different maturities and its expectation of future changes in
interest rates. The Portfolio may invest up to 20% of its total assets in
securities rated below Baa by Moody's or BBB by S&P, including no more than 5%
of its total assets in bonds rated at the time of purchase below Caa by Moody's
or CCC by S&P (or, in each case, if not rated, determined by the Subadviser to
be of comparable quality) (I.E., "junk bonds"). 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, as Subadviser, invests, 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 are 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
8
<PAGE>
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, the market price of growth stocks will often go down
more than other stocks. 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. The stated
percentage limitations are applied to an investment at the time of purchase
unless indicated otherwise.
CONVERTIBLE SECURITIES, PREFERRED STOCKS, WARRANTS AND RIGHTS -- 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). Rights represent a preemptive right of stockholders to purchase
additional shares of a stock at the time of a new issuance before the stock is
offered to the general public, allowing the stockholder to retain the same
ownership percentage after the new stock offering.
INVESTMENT IN SMALL CAP COMPANIES -- The SunAmerica/Aggressive Growth component
of the Multi-Managed Growth and Moderate Growth Portfolios, and the Asset
Allocation: Diversified Growth Portfolio, Stock Portfolio and other Managed
Components of the Multi-Managed Portfolios may invest in small companies having
market capitalizations of under $1 billion. While such companies may realize
more substantial growth than larger, more established companies, they may also
be subject to some additional risks. 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. A risk of investing in smaller, emerging companies is
that they often are at an earlier stage of development and therefore have
limited product lines, market access for such products, financial resources and
depth in management than larger, more established companies, 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. Smaller companies also may be
less significant factors within their industries and may have difficulty
withstanding competition from larger companies.
FOREIGN SECURITIES -- The Asset Allocation: Diversified Growth Portfolio may
invest up to 60% of its total assets, 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 Janus/Growth and SunAmerica/ Aggressive Growth components of
each Multi-Managed Portfolio may invest without limitation, in foreign
securities.
9
<PAGE>
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. The WMC/Fixed Income component may invest in U.S. dollar
denominated foreign debt securities without limitation. 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.
EURO CONVERSION. Effective January 1, 1999, several European countries will
irrevocably fix their existing national currencies to a new single European
currency unit, the "euro." Certain European investments may be subject to
additional risks as a result of this conversion. These risks include adverse tax
and accounting consequences, as well as difficulty in processing transactions.
The Adviser is aware of such potential problems and is coordinating efforts to
prevent or alleviate their adverse impact on the Portfolios. There can be no
assurance that a Portfolio will not suffer any adverse consequences as a result
of the euro conversion.
EMERGING MARKETS. Investments may be made from time to time in issuers
domiciled in, or government securities 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. To the extent the WMC/Fixed Income component of a Portfolio invests in
the debt securities of issuers domiciled in emerging market countries, these
investments will be included in the 20% limitation on high yield-bonds.
FOREIGN CURRENCY TRANSACTIONS. Each Portfolio has the ability to hold a portion
of its assets in foreign currencies and to enter into forward foreign currency
exchange contracts. It 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.
Each Portfolio 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 a Portfolio's securities.
Each Portfolio 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
10
<PAGE>
hedge, up to the amount of the premium received. A 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.
Each Portfolio 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 Portfolio 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 or otherwise
"cover" the obligation. 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.
Each Portfolio 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 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 Trust believes that swaps do not constitute senior securities
under the 1940 Act and, accordingly, they will not be treated as being subject
to the Portfolio's 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 than 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
interest rate on certain fixed income securities, known as "variable rate
obligations," is determined by reference to or is a percentage of an objective
standard, such as a bank's prime rate, the 90-day Treasury bill rate, or the
rate of return on commercial paper or bank certificates of deposit, and is
periodically adjusted. Certain variable rate obligations may have a demand
feature entitling the holder to resell the securities at a predetermined amount.
The interest rate on certain fixed income securities, called "floating rate
instruments," changes whenever there is a change in a designated base rate.
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.
The potential for capital appreciation with respect to variable rate obligations
or floating rate instruments will be less than with respect to fixed-rate
obligations. 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
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<PAGE>
U.S. Treasury (such as Government National Mortgage Association 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; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan
Banks.
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 a nationally recognized statistical rating organization such as, for
example, S&P (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or Baa), or, if
unrated, considered by the Manager 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 Manager 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 SunAmerica/Balanced components of the
Multi-Managed Portfolios will not invest in these types of securities.
The following table sets forth the weighted average ratings by Moody's as a
percentage of all bonds held by the Portfolios for the period April 15, 1997
(commencement of operations) through March 31, 1998.
<TABLE>
<CAPTION>
NOT
PORTFOLIO AAA AA A BAA BA RATED
- ------------------- ---------- ----- ----- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Multi-Managed
Growth Portfolio 75.2% 1.7% 5.6% 9.6% 4.9% 3.0%
Multi-Managed
Moderate Growth
Portfolio 72.2% 1.9% 6.2% 11.0% 5.3% 3.4%
Multi-Managed
Income/Equity
Portfolio 74.7% 1.6% 5.7% 10.0% 4.9% 3.1%
Multi-Managed
Income Portfolio 69.3% 1.8% 6.9% 12.2% 6.1% 3.7%
Asset-Allocation:
Diversified Growth
Portfolio 71.5% 3.3% 9.9% 14.0% 1.3% --
</TABLE>
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. Historically, the growth of the
high-yield bond market 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.
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<PAGE>
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 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 assets
under its control 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.
Credit Ratings -- Credit ratings evaluate the safety of principal and interest
payments and not the risk of fluctuations in market value of high-yield,
high-risk bonds. The success of a Portfolio's investment in such bonds may be
more dependent on the credit analysis of the Manager than is the case for higher
quality bonds.
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 for further information on these securities. 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, STEP-COUPON BONDS, DEFERRED INTEREST BONDS AND PIK
BONDS. Fixed income securities in which a Portfolio may invest also include
zero coupon bonds, step-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. A step-coupon bond is one in which a change in
interest rate is fixed contractually in advance. 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, step-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
both U.S. and non-U.S. dollar denominated money market instruments for reasons
which may include (a) liquidity purposes (to meet redemptions and expenses) or
(b) to
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<PAGE>
generate a return on idle cash held by a Portfolio during periods when a Manager
is unable to locate favorable investment opportunities. In order to facilitate
quarterly rebalancing of the Portfolios as described above and to adjust for the
flow of investments into and out of the Portfolios, 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 cash and short-term 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, 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. See the Statement of
Additional Information for a description of short-term debt securities and 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 appropriate
collateral with the Trust's custodian (or at an appropriate sub-custodian in the
case of tri-or quad-party repurchase agreements). 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. After writing such a covered call up to 10% of a
Portfolio's total 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). For hedging purposes or income enhancement,
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"). In addition, the Asset
Allocation: Diversified Growth Portfolio may use Futures in order to adjust its
exposure to various equity or fixed income markets or as a substitute for
investment in underlying cash markets. 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 normally either be listed on (1) a
national securities or commodities exchange or (2) over-the-counter markets.
However, the Asset Allocation: Diversified Growth Portfolio and the Janus/Growth
component of each Multi-Managed Portfolio may buy and sell options and Futures
on foreign equity indexes and foreign fixed income securities. Because the
markets for these instruments are relatively new and still developing, the
ability of the Asset Allocation: Diversified Growth Portfolio and the
Janus/Growth component of each Multi-Managed Portfolio to engage in such
transactions may be limited.
Each Portfolio may use spread transactions for any lawful purpose consistent
with the Portfolio's investment objective such as hedging or managing risk, but
not for speculation. A Portfolio may purchase covered spread options from
securities dealers. Such covered spread options are not presently exchange-
listed or exchange-traded. The purchase of a spread option gives a Portfolio the
right to put, or sell, a security that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that the Portfolio does not
own, but which is used as a benchmark. The risk to a Portfolio in purchasing
covered spread options is the cost of the premium paid for the spread option and
any transaction costs. In addition, there is no assurance that closing
transactions will be available. The purchase of spread options will be used to
protect a Portfolio against adverse changes in prevailing credit
14
<PAGE>
quality spreads, I.E., the yield spread between high quality and lower quality
securities. Such protection is only provided during the life of the spread
option.
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 correctly predict
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
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 that have a maturity of longer than seven days,
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, may be deemed to be liquid 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.
HYBRID INSTRUMENTS -- These instruments, including indexed or structured
securities, can combine the characteristics of equity or debt securities,
futures, and options. For example, the principal amount, redemption, or
conversion terms of a security could be related to the market price of some
commodity, currency, or securities index. Such securities may bear interest or
pay dividends at below market (or even relatively nominal) rates. Under certain
conditions, the redemption (or sale) value of such an investment could be zero.
See the Statement of Additional Information for a further discussion of these
types of 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.
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
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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 Manager 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 1/3% 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 Asset Allocation:
Diversified Growth Portfolio and the WMC/Fixed Income component of each Multi-
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.
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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, the same securities or securities substantially
similar to those sold short. A Portfolio generally will recognize any gain (but
not loss) for federal income tax purposes at the time that it makes a short sale
against the box. A Portfolio may not enter into a short sale, including a short
sale 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.
See the Statement of Additional Information for further information concerning
these and other types of securities and investment techniques in which the
Portfolios may from time to time invest, including dollar rolls, standby
commitments and reverse repurchase agreements.
MANAGEMENT
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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 -- 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 serves as adviser, manager and/or administrator for Anchor Pathway Fund,
Anchor Series Trust, Style Select Series, Inc., SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money Market Funds, Inc. and SunAmerica
Series Trust. The Adviser managed, advised and/or administered assets of
approximately $15 billion as of June 30, 1998 for investment companies,
individuals, pension accounts, and corporate and trust accounts.
The Trust, on behalf of each Portfolio, has 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 Asset Allocation:
Diversified Growth Portfolio, the Stock Portfolio and two of the Managed
Components of each of the Multi-Managed Portfolios. SunAmerica and its
affiliates, monitor the activities of the 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 obtained an exemptive order from the Securities and
Exchange Commission which would permit SunAmerica, subject to certain
conditions, to enter into
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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 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 will be notified when SunAmerica intends to commence relying on the
exemptive order, and would be notified of any Subadviser changes effected
thereafter.
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 0.89% of Assets for the
Multi-Managed Growth Portfolio, 0.85% of Assets for the Multi-Managed Moderate
Growth Portfolio, 0.81% of Assets for the Multi-Managed Income/Equity Portfolio,
0.77% of Assets for the Multi-Managed Income Portfolio, 0.85% of Assets for the
Asset Allocation: Diversified Growth Portfolio and 0.85% of Assets for the Stock
Portfolio. For the period April 15, 1997 (commencement of operations) through
March 31, 1998, each Portfolio paid to the Adviser a fee equal to the
percentages listed above.
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 1.29%, Multi-Managed Moderate Growth Portfolio
1.21%, Multi-Managed Income/Equity Portfolio 1.14%, Multi-Managed Income
Portfolio 1.06%, Asset Allocation: Diversified Growth Portfolio 1.21% and Stock
Portfolio 1.21%. 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.
In addition to serving as the Adviser to the Trust and supervising activities of
the Subadvisers, SunAmerica manages portions of the Aggressive Growth and
SunAmerica/Balanced components of the Multi-Managed Portfolios.
The Aggressive Growth and the equity portion of the SunAmerica/Balanced
components of the Multi-Managed Portfolios are managed by SunAmerica's Domestic
Equity Investment Team. The Team is composed of eight investment professionals
and traders, some of whom may focus more heavily on particular portfolios or
particular aspects of the domestic equity markets. Donna M. Calder has primary
responsibility for the Aggressive Growth component. Ms. Calder is a Vice
President of SunAmerica and has been a portfolio manager with the firm since
March 1998. Prior to joining SunAmerica, Ms. Calder was the Founder and General
Partner of Manhattan Capital Partners, L.P. Francis D. Gannon has primary
responsibility for the equity portion of the SunAmerica/Balanced component. Mr.
Gannon is a Vice President of SunAmerica and has been a portfolio manager with
the firm since 1996. He joined SunAmerica as an equity analyst in 1993.
SunAmerica's Fixed Income Investment Team, headed by P. Christopher Leary, is
responsible for managing the fixed-income portion of the SunAmerica/Balanced
component. Mr. Leary is an Executive Vice President and Director of Fixed Income
of SunAmerica and has been a portfolio manager with the firm since 1990.
SUBADVISERS -- The organizations described below serve as subadvisers to the
Portfolios pursuant to Subadvisory Agreements with SunAmerica. Under the
Subadvisory Agreements, Putnam manages the investment and reinvestment of the
assets of the Asset Allocation: Diversified Growth Portfolio, 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
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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 subadvisory
fees are payable by the Adviser to the respective Subadviser and do not increase
Portfolio expenses.
Each Subadviser is paid monthly by SunAmerica a fee equal to a percentage of the
Assets of the Portfolio allocated to the Subadviser. SunAmerica has agreed to
pay Janus a composite fee of 0.60% on the first $200 million and 0.55% on Assets
over $200 million, and WMC a composite fee of 0.225% on the first $100 million,
0.125% on the next $100 million and 0.10% on Assets over $200 million, in each
case based on the aggregate Assets it manages in the four Multi-Managed
Portfolios. In addition, SunAmerica has agreed to pay each of Putnam and T. Rowe
Price a fee at the following annual rates, expressed as a percentage of the
Assets of the respective Portfolio: Asset Allocation: Diversified Growth
Portfolio, 0.55% on the first $150 million, 0.50% on the next $150 million, and
0.40% on Assets over $300 million; and Stock Portfolio, 0.50% on the first $40
million, and 0.45% on Assets over $40 million. For the period April 15, 1997
(commencement of operations) through March 31, 1998, the Adviser paid to Janus
and WMC, with respect to each of the four Multi-Managed portfolios, a fee equal
to 0.60% and 0.225%, respectively, of average daily net assets. With respect to
the Asset Allocation: Diversified Growth Portfolio, the Adviser paid to Putnam a
fee equal to 0.55% of average daily net assets. In addition, the Adviser paid to
T. Rowe Price a fee equal to 0.50% of average daily net assets with respect to
the Stock Portfolio.
JANUS CAPITAL CORPORATION. Janus is a Colorado corporation with principal
offices at 100 Fillmore Street, Denver, Colorado 80206-4923. 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, 1998, had assets under management of approximately
$89 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. 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 is a Chartered Financial Analyst.
PUTNAM INVESTMENT MANAGEMENT, INC. Putnam is a Massachusetts corporation with
principal offices at One Post Office Square, Boston, Massachusetts. Putnam has
been managing mutual funds since 1937 and serves as investment adviser to the
funds in the Putnam Family. Putnam and its affiliates managed assets of
approximately $278 billion as of June 30, 1998. Putnam is a subsidiary of Putnam
Investments, Inc., which, other than a minority interest owned by employees, is
wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding
company whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management. Putnam's
Global Asset Allocation Committee has primary responsibility for the day-to-day
management of the Asset Allocation: Diversified Growth Portfolio.
T. ROWE PRICE ASSOCIATES, INC. 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 assets in excess of $140 billion as of June 30, 1998. T. Rowe Price is a
publicly traded company. The Stock Portfolio is managed by an Investment
Advisory Committee composed of the following members: Robert W. Smith, Chairman;
Charles A. Morris; Larry J. Puglia; and Daniel Theriault. Mr. Smith has
day-to-day responsibility for managing the Stock Portfolio and works with the
committee in developing and executing the Portfolio's investment program. Mr.
Smith joined T. Rowe Price in 1992 and is a Vice President and Equity Portfolio
Manager for T. Rowe Price and Rowe Price-Fleming International Inc. Mr. Smith is
the manager of the T. Rowe Price Growth Stock Fund and is also co-manager of the
T. Rowe Price Global Stock Fund, responsible for North American securities. In
addition to his work with the Global Stock Fund, Mr. Smith manages the North
American component of several other Rowe Price-Fleming global accounts.
Additionally, he has been on the Investment Advisory Committee for the T. Rowe
Price Growth Stock Fund since 1994. He previously
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served on the Investment Advisory Committee for T. Rowe Price Blue Chip Growth
Fund and the T. Rowe Price Value Fund.
WELLINGTON MANAGEMENT COMPANY, LLP. WMC is a Massachusetts limited liability
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, 1998, WMC had discretionary
management authority with respect to approximately $200.8 billion of assets.
Thomas L. Pappas serves as the portfolio manager of the WMC Fixed Income
component of each Multi-Managed Portfolio. Mr. Pappas is a Senior Vice President
of WMC and joined the company in 1987.
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.
PORTFOLIO TURNOVER AND BROKERAGE
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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,
I.E., over 100%. The quarterly rebalancing of the Portfolios as described under
"Investment Objectives, Policies and Restrictions -- Multi-Managed Portfolios"
above 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 200%. High portfolio turnover involves
correspondingly greater brokerage commissions, to the extent such commissions
are payable, and 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 (the "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.
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DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
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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) 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 (c) 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.
See the Contract prospectus for information regarding the federal income tax
treatment of the contracts and distributions to the separate accounts.
PRICE OF SHARES
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The Portfolios are open for business on any day the New York Stock Exchange
("NYSE") is open for regular trading. 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 the NYSE (generally 4:00 p.m., Eastern time). 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
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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
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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, and are generally allocated among
the applicable Portfolios based on the target allocations set forth in the
Contract prospectus.
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
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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 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.
22
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INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
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PricewaterhouseCoopers LLP (successor firm to 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.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
YEAR 2000 READINESS -- Many services provided to the Trust and its shareholders
by the Adviser rely on both the smooth functioning of the Adviser's computer and
computer-based systems as well as those of its outside service providers. Many
computer and computer-based systems cannot distinguish the year 2000 from the
year 1900 because of the way systems encode and calculate dates. This Year 2000
Issue potentially could have an adverse impact on the handling of security
trades, the payment of interest and dividends, pricing and account services. The
Adviser recognizes the importance of the Year 2000 Issue and is taking the
appropriate steps necessary in preparation for the year 2000. The Adviser fully
anticipates that its systems and those of its outside service providers will be
adapted in time for the year 2000, and to further this goal it has coordinated a
plan to repair, adapt or replace systems that are not Year 2000 compliant, and
has obtained similar assurances from its outside service providers. The Adviser
expects to significantly complete its plan by the end of the 1998 calendar year
and then perform appropriate systems testing during the 1999 calendar year.
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.
23
<PAGE>
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 (the
"Trust"). Capitalized terms used herein but not defined, have the meanings
assigned to them in the Prospectus. The Prospectus may be
obtained by writing to the Trust at the following address:
P.O. Box 54299
Los Angeles, California 90054-0299
July 28, 1998
<PAGE>
TABLE OF CONTENTS
TOPIC PAGE
- ----- ----
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . .B-3
Investment Objectives and Policies . . . . . . . . . . . . . . .B-3
Description of Commercial Paper and Bond Ratings . . . . . . . B-29
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-41
Price of Shares. . . . . . . . . . . . . . . . . . . . . . . . B-42
Execution of Portfolio Transactions. . . . . . . . . . . . . . B-42
General Information. . . . . . . . . . . . . . . . . . . . . . B-45
Custodian . . . . . . . . . . . . . . . . . . . . . . . . B-45
Independent Accountants and Legal Counsel . . . . . . . . B-45
Reports to Shareholders . . . . . . . . . . . . . . . . . B-45
Shareholder and Trustee Responsibility. . . . . . . . . . B-45
Registration Statement. . . . . . . . . . . . . . . . . . B-45
Financial Statements . . . . . . . . . . . . . . . . . . . . . B-46
B-2
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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 six 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"), the Asset Allocation: Diversified Growth
Portfolio and 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"), an Arizona
life insurance company. The Life Company is a wholly owned subsidiary of
SunAmerica Life Insurance Company, an Arizona corporation wholly owned by
SunAmerica Inc., a Maryland corporation.
SunAmerica Asset Management Corp. ("SunAmerica" or the "Adviser"), an
indirect, wholly owned subsidiary of the Life Company, serves as investment
adviser for each Portfolio. As described in the Prospectus, SunAmerica 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 objective and policies of each of the Portfolios are
described in the Trust's 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.
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, it risks the loss of its 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.
INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the Prospectus,
each Portfolio 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
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Portfolio attempts to dispose of its holdings, the Portfolio may receive lower
prices than might otherwise be obtained.
Companies with a market capitalization of $1 billion to $5 billion ("Mid-
Cap Companies") may also suffer more significant losses as well as realize more
substantial growth than larger, more established issuers. Thus, investments in
such companies tend to be more volatile and somewhat speculative.
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 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 three
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
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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") -- The Asset Allocation:
Diversified Growth Portfolio may invest, and 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 a Portfolio invests in PFICs, the tax laws may
require the Portfolio to recognize income associated with the PFIC prior to the
actual receipt of any such income in order to avoid the imposition of tax at the
Portfolio level.
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 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 Portfolio 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.
MORTGAGE-RELATED SECURITIES. A Portfolio may also invest in
mortgage-related securities, including certain U.S. government securities such
as GNMA, FNMA or FHLMC certificates (as defined below), and private
mortgage-related securities, 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
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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 does 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.
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
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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 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
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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 Asset Allocation:
Diversified Growth Portfolio and 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 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
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assets. These tranches tend to have market prices and yields which are much
more volatile than the PAC classes.
The Asset Allocation: Diversified Growth Portfolio and 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.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD BONDS. The WMC/Fixed Income
and Janus/Growth components of the Multi-Managed Portfolios and the Asset
Allocation: Diversified Growth Portfolio 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 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
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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.
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 servicer 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.
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:
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MONEY MARKET SECURITIES - Money Market securities may include
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.
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.
SAVINGS ASSOCIATION OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits) issued by mutual savings banks or
savings and loan associations.
COMMERCIAL PAPER - Short-term notes (up to 12 months) issued by
corporations or governmental bodies, including 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.
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 Investors Service ("Moody's") or
Standard & Poor's Corporation ("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.
GOVERNMENT SECURITIES - Debt securities maturing within one year
of the date of purchase include 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
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more frequently) have maturities in excess of one year, they are also
considered short-term debt securities. See "U.S. Government Securities".
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
appropriate collateral. 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 Managers in connection
with transactions in repurchase agreements and will regularly monitor each
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.
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 25% of a Portfolio's total 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"). In
addition, the Asset Allocation: Diversified Growth Portfolio may use Futures in
order to adjust its exposure to various equity or fixed income markets or as a
substitute for investment in underlying cash markets. 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);
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(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
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
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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. 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
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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 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.
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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 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.
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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 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
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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 (or affected by fluctuations in,
in the case of ADRs) 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 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 (or affected by fluctuations in, in the case of ADRs)
such foreign currency, or when a Portfolio believes that the U.S. dollar may
suffer a substantial decline against
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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
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
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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 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.
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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.
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
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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.
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 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 be deemed to be
liquid. 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
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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.
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
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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 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
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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 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.
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).
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENT. A Portfolio may
purchase or sell 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
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policies and not for the purposes of investment leverage. A Portfolio enters
into such transactions 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.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Portfolio may lend portfolio securities in amounts up to 33
1/3% 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 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.
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
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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."
DOLLAR ROLLS. Each Portfolio may enter into "dollar rolls" in which the
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 "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.
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
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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 the 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, each 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 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.
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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.
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.
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.
B-29
<PAGE>
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.
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 are either in default or are 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
B-30
<PAGE>
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 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
B-31
<PAGE>
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 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 speculation. 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
B-32
<PAGE>
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.
The quarterly rebalancing of the Portfolios as described in the 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 Asset Allocation: Diversified Growth Portfolio and
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 each such 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.
B-33
<PAGE>
2. With respect to the Asset Allocation: Diversified Growth Portfolio and
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. (Industry shall be determined for this purpose
by reference to Standard Industrial Classification codes.) 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 commodity pool operator
under the Commodity Exchange Act. Any Portfolio may engage in transactions in
put and call options on securities, indices and currencies, spread transactions,
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 extent 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. 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.
B-34
<PAGE>
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. Purchase securities on margin.
11. 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, 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.
12. 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 or substantially similar to those sold
short) if as a result more than 25% of its net assets would be subject to such
short sales.
13. Purchase or sell securities of other investment companies except (i)
to the extent permitted by applicable law and (ii) that Janus may invest
uninvested cash balances of the Janus/Growth component of each Multi-Managed
Portfolio in money market mutual funds that it manages to the extent permitted
by applicable law.
14. 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.
B-35
<PAGE>
TRUST OFFICERS AND TRUSTEES
The trustees and executive officers of the Trust, their business addresses,
ages and principal occupations for the past five years are set forth below.
Unless otherwise noted, the address of each executive officer and trustee is 1
SunAmerica Center, Los Angeles, California 90067-6022.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH PRINCIPAL OCCUPATIONS
ADDRESS THE TRUST DURING PAST FIVE YEARS
- ------------- -------------- ----------------------
<S> <C> <C>
Richards D. Barger, Trustee Senior Partner, Law Firm
*69 of Barger & Wolen;
formerly, Director,
Anchor National Life
Insurance Company
("Anchor National")
(1980-1986); Trustee,
Anchor Pathway Fund and
SunAmerica Series Trust.
James K. Hunt, *46 Trustee, Executive Vice
Chairman and President, SunAmerica
President Investments, Inc. (1993
to Present); President,
SunAmerica Corporate
Finance, since January
1994; Senior Vice
President, SunAmerica
Investments, Inc.
(1990-1993); Trustee,
Anchor Pathway Fund and
SunAmerica Series Trust.
Norman J. Metcalfe, Trustee Vice Chairman and Chief
*55 Financial Officer, The
Irvine Company (March
1993 to Present);
Executive Vice President
(1986-1992) and Director
(1984-1993), SunAmerica
Inc.; Trustee, Anchor
Pathway Fund and
SunAmerica Series Trust.
Allan L. Sher, 66 Trustee Director, Board of
Governors, American
Stock Exchange (1991 to
Present); Trustee,
Anchor Pathway Fund and
SunAmerica Series Trust.
William M. Wardlaw, Trustee Partner, Freeman Spogli
51 & Co., Incorporated
(privately owned
merchant banking firm)
(1988 to Present);
Trustee, Anchor Pathway
Fund and SunAmerica
Series Trust.
B-36
<PAGE>
Scott L. Robinson, Senior Vice Senior Vice President
52 President, and Controller,
Treasurer and SunAmerica Inc., since
Controller 1991; Senior Vice
President of Anchor
National, since 1988;
Senior Vice President,
Treasurer and Controller,
Anchor Pathway Fund and
SunAmerica Series Trust;
Joined SunAmerica Inc.
in 1978.
Susan L. Harris, 41 Vice President, Senior Vice President,
Counsel and since November 1995,
Secretary Secretary, since 1989,
and General Counsel-
Corporate Affairs, since
December 1994,
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.
Peter C. Sutton, 33 Vice President Senior Vice President,
The SunAmerica and Assistant SunAmerica, since April
Center Treasurer 1997; Treasurer,
733 Third Avenue SunAmerica Mutual Funds,
New York, NY 10017- Anchor Series Trust and
3204 Style Select Series,
Inc. since 1996; Vice
President and Assistant
Treasurer, SunAmerica
Series Trust and Anchor
Pathway Fund since
1994; Joined SunAmerica
in 1990.
</TABLE>
* A trustee who may be deemed to be an "interested person" of the Trust as that
term is defined in 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. A fee of
$500 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 for the period April 15, 1997
(commencement of operations) through March 31, 1998.
B-37
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS FROM REGISTRANT
COMPENSATION ACCRUED AS AND FUND
FROM PART OF FUND COMPLEX PAID TO
TRUSTEE REGISTRANT EXPENSES TRUSTEES*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Richards D. Barger $1,500 - $23,500
- --------------------------------------------------------------------------------
Norman J. Metcalfe $1,500 - $23,500
- --------------------------------------------------------------------------------
Allan L. Sher $1,500 - $23,500
- --------------------------------------------------------------------------------
William M. Wardlaw $1,000 - $21,250
- --------------------------------------------------------------------------------
</TABLE>
* Information is for the three investment companies in the Complex which pay
fees to these Trustees. The Complex consists of Anchor Pathway Fund, SunAmerica
Series Trust and the Trust.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Trust, on behalf of each Portfolio, entered into an Investment Advisory
and Management Agreement with SunAmerica to handle the Trust's day-to-day
affairs.
The Investment Advisory and Management Agreement provides that the Adviser
shall act as investment adviser to the Trust, manage the Trust's investments,
administer its business affairs, furnish offices, necessary facilities and
equipment, provide clerical, bookkeeping and administrative services, and permit
any of the Adviser's officers or employees to serve without compensation as
Trustees or officers of the Trust if duly elected to such positions. Under the
Agreement, the Trust agrees to assume and pay certain charges and expenses of
its operations, including: direct charges relating to the purchase and sale of
portfolio securities, interest charges, fees and expenses of independent legal
counsel and independent accountants, cost of stock certificates and any other
expenses (including clerical expenses) of issue, sale, repurchase or redemption
of shares, expenses of registering and qualifying shares for sale, expenses of
printing and distributing reports, notices and proxy materials to shareholders,
expenses of data processing and related services, shareholder recordkeeping and
shareholder account service, expenses of printing and distributing prospectuses
and statements of additional information, expenses of annual and special
shareholders' meetings, fees and disbursements of transfer agents and
custodians, expenses of disbursing dividends and distributions, fees and
expenses of Trustees who are not employees of the Adviser or its affiliates,
membership dues in the Investment Company Institute or any similar organization,
all taxes and fees to Federal, state or other governmental agencies, insurance
premiums and extraordinary expenses such as litigation expenses.
B-38
<PAGE>
The Investment Advisory and Management Agreement ("Management Agreement")
provides that it will continue in effect until two years from the date of its
approval by the Board of Trustees, 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).
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. The following table sets
forth the total advisory fees received by the Adviser from each Portfolio
pursuant to the Investment Advisory and Management Agreement for the period
April 15, 1997 (commencement of operations) through March 31, 1998.
ADVISORY FEES
<TABLE>
<CAPTION>
PORTFOLIO ADVISORY FEE
<S> <C>
Multi-Managed Growth $137,424
Portfolio
Multi-Managed Moderate $135,378
Growth Portfolio
Multi-Managed $101,740
Income/Equity Portfolio
Multi-Managed Income $ 76,624
Portfolio
Asset Allocation: $208,284
Diversified Income
Portfolio
Stock Portfolio $178,227
</TABLE>
For the period April 15, 1997 (commencement of operations) through
March 31, 1998, the Adviser voluntarily waived fees or reimbursed
expenses of each of the following Portfolios: Multi-Managed Growth
Portfolio - $23,646; Multi-Managed Moderate Growth Portfolio - $29,927;
Multi-Managed Income/Equity Portfolio - $36,590; Multi-Managed Income
Portfolio - $43,490; Asset Allocation: Diversified Growth Portfolio -
$77,724; and Stock Portfolio - $10,325.
SUBADVISORY AGREEMENTS
Janus Capital Corporation ("Janus"), T. Rowe Price Associates, Inc. ("T.
Rowe Price"), Putnam Investment Management, Inc. ("Putnam") and Wellington
Management Company, LLP ("WMC") act as Subadvisers to certain of the Portfolios
pursuant to various Subadvisory Agreements
B-39
<PAGE>
with SunAmerica. Under the respective Subadvisory Agreements, T. Rowe Price
manages the investment and reinvestment of the Stock Portfolio, Putnam manages
the investment and reinvestment of the Asset Allocation: Diversified Growth
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 SunAmerica and discharges its
responsibilities subject to the policies of the Trustees and the oversight of
supervision of SunAmerica, which pays the Subadvisers' fees.
The Adviser pays each Subadviser a monthly fee with respect to each
Portfolio for which the Subadviser performs services, computed on average daily
net assets, at the following annual rates:
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO FEE
<S> <C> <C>
Janus Multi-Managed Growth .60% on the first
Portfolio $200 million
Multi-Managed Moderate .55% thereafter
Growth Portfolio
Multi-Managed
Income/Equity Portfolio
Multi-Managed Income
Portfolio
Wellington Multi-Managed Growth .225% on the first
Portfolio $100 million
Multi-Managed Moderate .125% on the next
Growth Portfolio $100 million
Multi-Managed .10% thereafter
Income/Equity Portfolio
Multi-Managed Income
Portfolio
Putnam Asset Allocation: .55% on the first
Diversified Growth $150 million
Portfolio .50% on the next
$150 million
.40% thereafter
T. Rowe Price Stock Portfolio .50% on the first
$40 million
.40% thereafter
</TABLE>
The following table sets forth the fees paid to the Subadvisers by the
Adviser for the period April 15, 1997 (commencement of operations) through March
31, 1998.
SUBADVISORY FEES
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO FEE
<S> <C> <C>
Janus Multi-Managed Growth $ 37,947
Portfolio
Multi-Managed Moderate $ 27,549
Growth Portfolio
Multi-Managed $ 14,021
Income/Equity Portfolio
Multi-Managed Income $ 4,971
Portfolio
Wellington Multi-Managed Growth $ 6,813
Portfolio
Multi-Managed Moderate $ 12,720
Growth Portfolio
Multi-Managed $ 15,084
Income/Equity Portfolio
Multi-Managed Income $ 16,688
Portfolio
Putnam Asset Allocation: $134,772
Diversified Growth
Portfolio
T. Rowe Stock Portfolio $104,733
Price
</TABLE>
B-40
<PAGE>
The Subadvisory Agreements will continue in effect for two years from the
dates thereof, 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 termination of the Management Agreement. Each Subadvisory
Agreement 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.
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. 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.
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
B-41
<PAGE>
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 Trust is open for business on any day the New York Stock Exchange
("NYSE") is open for regular trading. Shares are valued each day as of the
close of regular trading on the NYSE (generally 4:00 p.m., Eastern time). Each
Portfolio calculates the net asset value of its shares by dividing the total
value of its net assets by the shares outstanding.
Stocks are stated at value based upon closing sales prices reported on
recognized securities exchanges or, for listed securities having no sales
reported and for unlisted securities, upon last reported bid prices.
Non-convertible bonds, debentures, other long-term debt securities and
short-term securities with original or remaining maturities in excess of 60
days, are normally valued at prices obtained for the day of valuation from a
bond pricing service of a major dealer in bonds, when such prices are available;
however, in circumstances in which the Manager deems it appropriate to do so, an
over-the-counter or exchange quotation at the mean of representative bid or
asked prices 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. If a security's price is available from more than one
foreign exchange, a Portfolio uses the exchange that is the primary market for
the security. 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 traded on
national securities exchanges are valued as of the close of the exchange on
which they are traded. Futures and options traded on commodities exchanges are
valued at their last sale price as of the close of such exchange. 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.
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
B-42
<PAGE>
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 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 following table sets forth the brokerage commissions paid by the
Portfolios and the amounts of the brokerage commissions which were paid to
affiliated broker-dealers of such
B-43
<PAGE>
Portfolios for the period April 15, 1997 (commencement of operations) through
March 31, 1998.
1998 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID TO PERCENTAGE PAID
PORTFOLIO BROKERAGE AFFILIATED TO AFFILIATED
COMMISSIONS BROKER-DEALERS BROKER-DEALERS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Managed Growth $36,894 -- --
- --------------------------------------------------------------------------------------
Multi-Managed Moderate Growth $31,159 -- --
- --------------------------------------------------------------------------------------
Multi-Managed Income/Equity $12,098 -- --
- --------------------------------------------------------------------------------------
Multi-Managed Income $ 5,374 -- --
- --------------------------------------------------------------------------------------
Asset Allocation: Diversified Growth $84,108 $635 0.75%
- --------------------------------------------------------------------------------------
Stock $44,763 -- --
- --------------------------------------------------------------------------------------
</TABLE>
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.
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.
B-44
<PAGE>
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 - PricewaterhouseCoopers LLP
(successor firm to 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 & Goodman, LLP, 919 Third Avenue, New York, NY 10022, and Blazzard,
Grodd & Hasenauer, P.C., 943 Coast Road East, Westport, CT 06881, 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 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.
B-45
<PAGE>
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information are the
audited financial statements of the Trust with respect to the period April 15,
1997 (commencement of operations) to March 31, 1998.
B-46
<PAGE>
- ----------------
SEASONS SERIES TRUST
MULTI-MANAGED
GROWTH PORTFOLIO INVESTMENT PORTFOLIO -- MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK -- 70.7% SHARES VALUE
<S> <C> <C>
- -----------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 3.4%
APPAREL & TEXTILES -- 0.5%
Oakley, Inc.+ .......................... 8,200 $ 94,813
R.P.M., Inc. ........................... 1,625 28,945
Sola International, Inc.+ .............. 800 33,150
AUTOMOTIVE -- 0.6%
Federal-Mogul Corp. .................... 2,775 147,595
Ford Motor Co. ......................... 700 45,369
HOUSING -- 0.0%
Krause's Furniture, Inc.+ .............. 3,900 14,625
RETAIL -- 2.3%
Abercrombie & Fitch Co., Class A+ ...... 1,300 54,681
Costco Cos., Inc.+ ..................... 2,450 130,769
CVS Corp. .............................. 400 30,200
Cybershop International, Inc.+ ......... 1,150 10,781
Duane Reade, Inc.+ ..................... 6,493 165,977
Federated Department Stores, Inc.+ ..... 900 46,631
Gap, Inc. .............................. 750 33,750
Office Depot, Inc.+ .................... 1,900 59,138
Pacific Sunwear of California+ ......... 500 20,750
Sunglass Hut International, Inc.+ ...... 8,400 88,200
U.S. Vision, Inc.+ ..................... 3,000 30,750
Wal-Mart Stores, Inc. .................. 1,000 50,813
Woolworth Corp.+ ....................... 1,000 25,000
-------------
1,111,937
-------------
CONSUMER STAPLES -- 1.2%
FOOD, BEVERAGE & TOBACCO -- 0.7%
DEKALB Genetics Corp., Class B ......... 1,780 119,037
Flowers Industries, Inc. ............... 1,000 23,437
Philip Morris Cos., Inc. ............... 1,300 54,194
RJR Nabisco Holdings Corp. ............. 700 21,919
UST, Inc. .............................. 600 19,350
HOUSEHOLD PRODUCTS -- 0.5%
Colgate-Palmolive Co. .................. 700 60,638
Gillette Co. ........................... 400 47,475
Procter & Gamble Co. ................... 600 50,625
-------------
396,675
-------------
ENERGY -- 1.5%
ENERGY SERVICES -- 0.3%
Baker Hughes, Inc. ..................... 600 24,150
Friede Goldman International, Inc.+ .... 900 25,987
</TABLE>
- ----------------
4
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
ENERGY SERVICES (CONTINUED)
Schlumberger Ltd. ...................... 300 $ 22,725
Smedvig ASA, Class B ................... 749 15,030
Transocean Offshore, Inc. .............. 500 25,719
ENERGY SOURCES -- 1.2%
Exxon Corp. ............................ 800 54,100
Global Marine, Inc.+ ................... 750 18,563
Mobil Corp. ............................ 500 38,312
Nabors Industries, Inc.+ ............... 750 17,766
Noble Affiliates, Inc. ................. 800 33,300
Ocean Rig ASA+ ......................... 57,031 58,343
Royal Dutch Petroleum Co. .............. 600 34,087
Smith International, Inc.+ ............. 1,593 87,715
Texaco, Inc. ........................... 800 48,200
-------------
503,997
-------------
FINANCE -- 10.5%
BANKS -- 4.5%
Ambanc Holding Co., Inc. ............... 325 6,175
Astoria Financial Corp. ................ 235 14,526
Banca Commerciale Italiana+ ............ 39,668 197,905
Bank of New York Co., Inc. ............. 2,125 133,477
BankAmerica Corp. ...................... 2,050 169,381
BankBoston Corp. ....................... 300 33,075
Chase Manhattan Corp. .................. 400 53,950
Citicorp ............................... 250 35,500
First American Corp. ................... 1,300 63,700
First Chicago NBD Corp. ................ 700 61,688
First Defiance Financial Corp. ......... 945 14,411
First Union Corp. ...................... 700 39,725
Golden State Bancorp, Inc.+ ............ 1,600 61,100
Hibernia Corp., Class A ................ 3,100 63,744
Klamath First Bancorp, Inc. ............ 710 16,330
Mellon Bank Corp. ...................... 500 31,750
North Central Bancshares, Inc. ......... 130 2,893
PNC Bank Corp. ......................... 1,800 107,887
Provident Financial Holdings, Inc.+ .... 525 12,338
Queens County Bancorp, Inc. ............ 400 17,600
Sovereign Bancorp, Inc. ................ 3,400 61,837
Star Banc Corp. ........................ 1,250 73,906
Summit Bancorp. ........................ 1,200 60,075
TF Financial Corp. ..................... 90 2,520
U.S. Bancorp ........................... 1,055 131,611
FINANCIAL SERVICES -- 3.7%
American Express Co. ................... 600 55,087
Associates First Capital Corp., Class
A .................................... 2,930 231,470
Beneficial Corp. ....................... 490 60,913
Capital One Financial Corp. ............ 1,000 78,875
Charles Schwab Corp. ................... 2,052 77,976
CIT Group, Inc., Class A+ .............. 1,300 42,413
</TABLE>
----------------
5
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
ContiFinancial Corp.+ .................. 800 $ 24,400
Federal Agricultural Mortgage Corp.+ ... 700 39,200
Federal National Mortgage
Association .......................... 800 50,600
FirstSpartan Financial Corp. ........... 265 11,958
Healthcare Financial Partners, Inc.+ ... 1,400 66,325
Household International, Inc. .......... 1,125 154,969
Jefferies Group, Inc. .................. 200 11,300
Legg Mason, Inc. ....................... 500 29,656
Lehman Brothers Holdings, Inc. ......... 500 37,438
SLM Holding Corp. ...................... 2,820 123,022
T&W Financial Corp.+ ................... 2,000 57,500
Waddell & Reed Financial, Inc., Class
A+ ................................... 1,050 27,300
INSURANCE -- 2.3%
Aetna, Inc. ............................ 300 25,031
Allstate Corp. ......................... 400 36,775
Chubb Corp. ............................ 300 23,513
Conseco, Inc. .......................... 900 50,962
Reliance Group Holdings, Inc. .......... 4,000 76,500
Stirling Cooke Brown Holdings Ltd.+ .... 500 13,250
Swiss Life Insurance & Pension Co. ..... 108 91,316
The Hartford Financial Services Group,
Inc. ................................. 400 43,400
UICI+ .................................. 2,375 82,086
UNUM Corp. ............................. 5,700 314,569
-------------
3,404,908
-------------
HEALTHCARE -- 9.2%
DRUGS -- 5.5%
Abbott Laboratories, Inc. .............. 400 30,125
Alkermes, Inc.+ ........................ 2,000 49,750
Alza Corp.+ ............................ 3,140 140,711
Bristol-Myers Squibb Co. ............... 700 73,019
Centocor, Inc.+ ........................ 500 22,313
Eli Lilly & Co. ........................ 2,835 169,037
ICN Pharmaceuticals, Inc. .............. 1,400 68,950
Inhale Therapeutic Systems ............. 1,000 27,125
Merck & Co., Inc. ...................... 500 64,187
Pfizer, Inc. ........................... 3,565 355,386
Sepracor, Inc.+ ........................ 1,000 42,625
Smithkline Beecham PLC ................. 12,026 151,490
Warner-Lambert Co. ..................... 3,475 591,836
HEALTH SERVICES -- 1.8%
Advance Paradigm, Inc.+ ................ 1,500 59,437
Assisted Living Concepts, Inc.+ ........ 1,000 21,625
Boron, LePore & Associates, Inc.+ ...... 1,700 56,313
Columbia/HCA Healthcare Corp. .......... 1,400 45,150
Novoste Corp.+ ......................... 2,400 62,250
Omnicare, Inc. ......................... 5,599 221,860
Sunrise Assisted Living, Inc.+ ......... 1,000 44,750
Tenet Healthcare Corp.+ ................ 1,100 39,944
</TABLE>
- ----------------
6
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
HEALTH SERVICES (CONTINUED)
United Healthcare Corp. ................ 300 $ 19,425
Vision Twenty-One, Inc.+ ............... 2,100 24,675
MEDICAL PRODUCTS -- 1.9%
Arterial Vascular Engineering, Inc.+ ... 2,000 73,250
Baxter International, Inc. ............. 500 27,563
Cardinal Health, Inc. .................. 765 67,463
Cytyc Corp.+ ........................... 2,500 62,500
Endocardial Solutions, Inc.+ ........... 500 7,000
Johnson & Johnson ...................... 600 43,988
Medaphis Corp.+ ........................ 5,700 59,494
Respironics, Inc.+ ..................... 3,000 86,812
Sofamor Danek Group, Inc.+ ............. 2,070 176,467
-------------
2,986,520
-------------
INDUSTRIAL & COMMERCIAL -- 8.1%
AEROSPACE & MILITARY TECHNOLOGY -- 0.1%
Boeing Co. ............................. 700 36,488
BUSINESS SERVICES -- 5.0%
Aavid Thermal Technologies, Inc.+ ...... 4,400 135,850
Billing Concepts Corp.+ ................ 200 5,188
Cendant Corp.+ ......................... 1,000 39,625
Cultural Access Worldwide, Inc.+ ....... 10,000 158,750
D.R. Horton, Inc. ...................... 1,500 31,875
Delta & Pine Land Co. .................. 3,640 189,280
DSET Corp.+ ............................ 3,400 63,537
Gartner Group, Inc., Class A+ .......... 700 26,163
GTECH Holdings Corp.+ .................. 400 15,550
Ha-Lo Industries, Inc.+ ................ 3,900 136,256
Metro One Telecommunications, Inc.+ .... 5,600 66,500
NCO Group, Inc.+ ....................... 1,000 25,000
Network Appliance, Inc. ................ 1,900 67,450
Owens-Illinois, Inc.+ .................. 500 21,625
Positron Fiber Systems Corp., Class
A+ ................................... 9,600 73,800
PSINet, Inc.+ .......................... 5,900 65,637
Ryland Group, Inc. ..................... 1,000 27,625
Sealed Air Corp.+ ...................... 2,440 159,820
Service Corp. International ............ 1,000 42,437
Sysco Corp. ............................ 800 20,500
Toll Brothers, Inc.+ ................... 1,500 42,188
Tomra Systems ASA ...................... 571 15,128
Transition Systems, Inc.+ .............. 3,300 67,237
Unisys Corp.+ .......................... 4,000 76,000
USA Waste Services, Inc.+ .............. 1,100 49,019
ELECTRICAL EQUIPMENT -- 0.4%
Aeroflex, Inc.+ ........................ 4,700 62,275
North American Scientific, Inc.+ ....... 2,200 79,200
</TABLE>
----------------
7
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (CONTINUED)
MACHINERY -- 0.2%
EVI, Inc.+ ............................. 1,100 $ 50,944
Varco International, Inc.+ ............. 750 19,312
MULTI-INDUSTRY -- 1.9%
Corning, Inc. .......................... 800 35,400
Raision Tehtaat Oy ..................... 1,755 251,945
Republic Industries, Inc.+ ............. 1,400 36,137
Siebe PLC .............................. 5,571 121,609
Tyco International Ltd. ................ 2,880 157,320
TRANSPORTATION -- 0.5%
Atlas Air, Inc.+ ....................... 1,600 52,100
Burlington Northern Santa Fe Corp. ..... 400 41,600
Comair Holdings, Inc. .................. 1,000 26,500
Trans World Airlines, Inc.+ ............ 2,500 30,781
-------------
2,623,651
-------------
INFORMATION & ENTERTAINMENT -- 5.6%
BROADCASTING & MEDIA -- 4.6%
CBS Corp. .............................. 6,385 216,691
Chancellor Media Corp.+ ................ 4,805 220,429
Cinar Films, Inc., Class B+ ............ 1,000 42,625
Clear Channel Communications, Inc.+ .... 400 39,200
DoubleClick, Inc.+ ..................... 2,000 70,250
Forrester Research, Inc.+ .............. 500 17,750
Jacor Communications, Inc.+ ............ 1,000 59,000
Lamar Advertising Co., Class A+ ........ 2,610 91,350
Outdoor Systems, Inc.+ ................. 2,960 103,785
The Petersen Companies, Inc., Class
A+ ................................... 2,000 50,000
Time Warner, Inc. ...................... 7,544 543,168
Univision Communications, Inc., Class
A+ ................................... 1,250 46,563
ENTERTAINMENT PRODUCTS -- 0.2%
Hasbro, Inc. ........................... 800 28,250
Mattel, Inc. ........................... 800 31,700
LEISURE & TOURISM -- 0.8%
Hilton Hotels Corp. .................... 900 28,688
McDonald's Corp. ....................... 800 48,000
Outback Steakhouse, Inc.+ .............. 1,900 74,337
Primadonna Resorts, Inc.+ .............. 6,000 94,500
-------------
1,806,286
-------------
INFORMATION TECHNOLOGY -- 25.4%
COMMUNICATION EQUIPMENT -- 2.1%
CIENA Corp.+ ........................... 1,500 63,937
Lucent Technologies, Inc. .............. 900 115,087
Nokia Corp., Class A ADR ............... 3,060 330,289
Tellabs, Inc.+ ......................... 500 33,563
U.S. West Media Group+ ................. 3,240 112,590
</TABLE>
- ----------------
8
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
COMPUTERS & BUSINESS EQUIPMENT -- 2.0%
Computer Sciences Corp. ................ 600 $ 33,000
Dell Computer Corp.+ ................... 1,930 130,758
EMC Corp.+ ............................. 3,470 131,209
HBO & Co. .............................. 3,905 235,764
Hewlett-Packard Co. .................... 700 44,363
Honeywell, Inc. ........................ 400 33,075
International Business Machines
Corp. ................................ 400 41,550
ELECTRONICS -- 4.2%
Analog Devices, Inc.+ .................. 10,300 342,475
Applied Materials, Inc.+ ............... 900 31,781
ASM Lithography Holdings NV+ ........... 2,705 250,043
ATMI, Inc.+ ............................ 2,100 63,525
Emerson Electric Co. ................... 700 45,631
General Electric Co. ................... 900 77,569
Hubbell, Inc., Class B ................. 600 30,225
Intel Corp. ............................ 500 39,031
Lam Research Corp.+ .................... 400 11,250
Maxim Integrated Products, Inc.+ ....... 2,180 79,434
Molex, Inc., Class A ................... 1,100 29,494
Motorola, Inc. ......................... 500 30,313
Pittway Corp., Class A ................. 3,840 276,480
Vitesse Semiconductor Corp.+ ........... 1,330 62,718
SOFTWARE -- 12.7%
America Online, Inc.+ .................. 7,344 501,687
Applied Voice Technology, Inc.+ ........ 1,000 39,000
Aspen Technology, Inc.+ ................ 5,375 221,719
At Home Corp., Series A+ ............... 3,710 125,444
Cadence Design Systems, Inc.+ .......... 6,680 231,295
Caere Corp.+ ........................... 5,000 54,375
Cambridge Technology Partners, Inc.+ ... 800 39,650
Cisco Systems, Inc.+ ................... 5,855 400,336
Computer Associates International,
Inc. ................................. 1,000 57,750
Computer Task Group, Inc. .............. 1,000 41,188
Compuware Corp.+ ....................... 2,500 123,437
CrossKeys Systems Corp.+ ............... 1,000 11,250
Intuit, Inc.+ .......................... 1,930 93,364
ISS Group, Inc.+ ....................... 600 23,325
J.D. Edwards & Co.+ .................... 3,800 124,212
Keane, Inc.+ ........................... 1,300 73,450
Microsoft Corp.+ ....................... 6,835 611,732
MindSpring Enterprises, Inc.+ .......... 1,000 64,250
Oracle Corp.+ .......................... 900 28,406
Parametric Technology Corp.+ ........... 18,415 613,450
Pegrine Systems, Inc.+ ................. 3,500 66,937
PeopleSoft, Inc.+ ...................... 3,155 166,229
Reynolds & Reynolds Co., Class A ....... 1,000 21,875
Sapient Corp.+ ......................... 1,810 85,749
Segue Software, Inc.+ .................. 700 9,100
Sterling Commerce, Inc.+ ............... 1,400 64,925
Storage Technology Corp.+ .............. 850 64,653
</TABLE>
----------------
9
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
SOFTWARE (CONTINUED)
VERITAS Software Corp.+ ................ 1,230 $ 72,724
VocalTec Communications Ltd.+ .......... 1,000 20,500
Wind River Systems+ .................... 1,865 74,134
TELECOMMUNICATIONS -- 4.4%
Alltel Corp. ........................... 1,000 43,687
Clearnet Communications, Inc., Class
A .................................... 4,500 63,844
Comcast Corp., Class A+ ................ 10,540 372,194
Frontier Corp. ......................... 3,500 113,969
GST Telecommunications, Inc+ ........... 3,900 58,744
Intermedia Communications, Inc.+ ....... 800 63,700
IWL Communications, Inc. ............... 1,000 17,875
Pacific Gateway Exchange, Inc.+ ........ 1,300 74,425
RELTEC Corp.+ .......................... 250 8,859
Saville Systems PLC ADR+ ............... 500 25,625
Star Telecommunications, Inc.+ ......... 900 50,062
STARTEC Global Communications Corp.+ ... 2,600 65,000
Tele-Communications, Inc., Series A+ ... 12,896 400,985
Teleport Communications Group Inc.,
Class A+ ............................. 1,200 70,500
-------------
8,230,769
-------------
MATERIALS -- 2.7%
CHEMICALS -- 2.4%
Cabot Corp. ............................ 1,985 73,197
du Pont (E.I.) de Nemours & Co. ........ 700 47,600
Monsanto Co. ........................... 10,845 563,940
Solutia, Inc. .......................... 3,195 95,051
FOREST PRODUCTS -- 0.2%
American Pad & Paper Co.+ .............. 900 6,525
Boise Cascade Corp. .................... 1,400 50,487
Sonoco Products Co. .................... 300 12,019
METALS & MINERALS -- 0.1%
EASCO, Inc. ............................ 1,000 15,250
Martin Marietta Materials, Inc. ........ 700 30,231
-------------
894,300
-------------
REAL ESTATE -- 0.3%
REAL ESTATE COMPANIES -- 0.1%
The Rouse Co. .......................... 500 15,750
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
Crescent Real Estate Equities Co. ...... 700 25,200
ElderTrust+ ............................ 1,000 17,875
Equity Office Properties Trust ......... 400 12,250
-------------
71,075
-------------
</TABLE>
- ----------------
10
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- 2.8%
ELECTRIC UTILITIES -- 0.3%
Duke Energy Corp. ...................... 800 $ 47,650
GPU, Inc. .............................. 1,000 44,250
GAS & PIPELINE UTILITIES -- 0.3%
Consolidated Natural Gas Co. ........... 700 40,381
Enron Corp. ............................ 900 41,737
US Filter Corp.+ ....................... 900 31,613
TELEPHONE-- 2.2%
Ameritech Corp. ........................ 900 44,494
AT&T Corp. ............................. 800 52,500
Bell Atlantic Corp. .................... 407 41,718
Century Telephone Enterprises, Inc. .... 1,050 64,181
Cincinnati Bell, Inc. .................. 1,800 64,125
GTE Corp. .............................. 600 35,925
MCI Communications Corp. ............... 600 29,700
SBC Communications, Inc. ............... 1,200 52,350
Telecom Italia SpA ..................... 17,263 136,030
Winstar Communications, Inc.+ .......... 1,500 64,125
WorldCom, Inc.+ ........................ 3,114 134,097
-------------
924,876
-------------
TOTAL COMMON STOCK (cost $19,667,286)... 22,954,994
-------------
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 23.6% AMOUNT
<S> <C> <C>
- -----------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 0.1%
RETAIL -- 0.1%
J.C. Penney Co., Inc. 7.40% 2037 ....... $ 20,000 21,578
Fred Meyer, Inc. 7.38% 2005 ............ 25,000 25,071
-------------
46,649
-------------
CONSUMER STAPLES -- 0.1%
FOOD, BEVERAGE & TOBACCO -- 0.1%
Panamerican Beverages, Inc. 8.13%
2003 ................................. 30,000 31,890
-------------
ENERGY -- 0.2%
ENERGY SOURCES-- 0.2%
Newfield Exploration Co., Series B 7.45%
2007* ................................ 10,000 9,956
Petroleos Mexicano 9.00% 2007 .......... 25,000 25,594
YPF Sociedad Anonima 8.00% 2004 ........ 15,000 15,238
-------------
50,788
-------------
FINANCE -- 4.5%
BANKS -- 1.2%
Banc One Corp. 8.00% 2027 .............. 18,000 20,365
Bank One Columbus 7.38% 2002 ........... 25,000 26,112
Banponce Financial Corp. 6.75% 2001 .... 20,000 20,230
Credit National 7.00% 2005 ............. 20,000 20,011
</TABLE>
----------------
11
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
BANKS (CONTINUED)
Export Import Bank of Korea 6.50%
2006 ................................. $ 35,000 $ 30,259
First Chicago NBD Corp. 7.25% 2004 ..... 60,000 62,790
First Republic Bancorp 7.75% 2012 ...... 25,000 25,615
First Union-Lehman Brothers Commercial
Mortgage Corp. 6.60% 2029 ............ 55,000 55,764
Korea Development Bank 7.13% 2001 ...... 15,000 14,105
NBD Bank SA 8.25% 2024 ................ 25,000 29,525
NCNB Co. 9.38% 2009 .................... 32,000 39,441
United States Bancorp 7.50% 2026 ....... 50,000 54,295
FINANCIAL SERVICES -- 3.2%
Allstate Financing II 7.83% 2045 ....... 24,000 24,571
Asset Securitization Corp. 6.66%
2041# ................................ 50,000 51,016
Associates Corp. of North America 7.63%
2004 ................................. 60,000 64,261
CS First Boston Mortgage Securities
Corp. 7.24% 2029 ..................... 70,000 73,587
Dime Capital Trust I, Series A 9.33%
2027 ................................. 20,000 22,556
Finova Capital Corp. 6.63% 2001 ........ 50,000 50,615
Finova Capital Corp., Series C 6.39%
2002 ................................. 30,000 30,146
Fleet Mortgage Group, Inc. 6.84%
2003 ................................. 30,000 30,507
Ford Motor Credit Company 7.02% 2000 ... 50,000 51,093
GE Capital Mortgage Services Inc. 6.25%
2023 ................................. 16,025 15,935
Lubermens Mutual Casualty Co. 8.30%
2037* ................................ 40,000 42,540
Morgan Stanley Capital I, Inc. 7.22%
2007* ................................ 60,000 63,337
Popular North America, Inc. 6.63%
2002 ................................. 35,000 35,502
Private Export Funding Corp. 6.31%
2004 ................................. 100,000 102,278
Private Export Funding Corp. 6.62%
2005 ................................. 120,000 124,617
Private Export Funding Corp. 7.03%
2003 ................................. 35,000 36,855
Private Export Funding Corp. 7.30%
2002 ................................. 125,000 131,171
Private Export Funding Corp. 7.90%
2000 ................................. 35,000 36,405
US West Capital Funding, Inc. 6.95%
2037 ................................. 40,000 41,701
INSURANCE -- 0.1%
Cigna Corp. 7.88% 2027 ................. 19,000 20,671
Jackson National Life Insurance Co.
8.15% 2027* .......................... 22,000 24,169
-------------
1,472,045
-------------
HEALTHCARE -- 0.4%
HEALTH SERVICES -- 0.3%
Allegiance Corp. 7.00% 2026 ............ 55,000 56,825
Tenet Healthcare Corp. 7.88% 2003 ...... 20,000 20,300
MEDICAL PRODUCTS -- 0.1%
Beckman Instruments, Inc. 7.10%
2003* ................................ 40,000 40,079
-------------
117,204
-------------
INDUSTRIAL & COMMERCIAL -- 0.3%
MACHINERY -- 0.1%
Cincinnati Milacron, Inc. 7.88% 2000 ... 35,000 35,814
</TABLE>
- ----------------
12
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (CONTINUED)
TRANSPORTATION -- 0.2%
AMR Corp. 9.88% 2020 ................... $ 30,000 $ 39,169
Continental Airlines 6.65% 2019 ........ 40,000 39,777
-------------
114,760
-------------
INFORMATION & ENTERTAINMENT -- 0.5%
BROADCASTING & MEDIA -- 0.5%
Comcast Cable Communications 8.50%
2027 ................................. 15,000 17,518
News America Holdings, Inc. 8.00%
2016 ................................. 65,000 70,044
Scholastic Corp. 7.00% 2003 ............ 35,000 35,877
Viacom, Inc. 7.75% 2005 ................ 40,000 41,950
-------------
165,389
-------------
INFORMATION TECHNOLOGY -- 0.2%
TELECOMMUNICATIONS -- 0.2%
Tele-Communications, Inc. 7.25% 2005 ... 25,000 25,585
Tele-Communications, Inc. 9.25% 2002 ... 25,000 27,362
-------------
52,947
-------------
MATERIALS -- 0.1%
CHEMICALS -- 0.1%
ICI Wilmington, Inc. 6.95% 2004 ........ 35,000 36,016
-------------
MUNICIPAL BONDS -- 0.5%
MUNICIPAL BONDS -- 0.5%
Hudson County New Jersey Improvement
Authority Facility 6.55% 2002 ........ 45,000 45,770
Huntsville Alabama Solid Waste Disposal
Authority 5.95% 2003 ................. 50,000 49,152
Miami Florida Revenue 7.25% 2003 ....... 60,000 62,906
-------------
157,828
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 0.9%
FOREIGN GOVERNMENT -- 0.9%
Australian Government 6.75%
2006 ............................(AUD) 290,000 205,412
Republic of Argentina 11.00% 2006 ...... 25,000 27,813
Republic of Columbia 7.25% 2004 ........ 33,000 31,521
Republic of Columbia 7.63% 2007 ........ 17,000 16,022
Republic of Lithuania 7.13% 2002* ...... 19,000 18,620
-------------
299,388
-------------
REAL ESTATE -- 0.4%
REAL ESTATE COMPANIES -- 0.2%
Post Apartment Homes LP 7.02% 2001 ..... 60,000 61,045
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
Equity Office Properties Operating LP
6.38% 2003* .......................... 60,000 59,399
-------------
120,444
-------------
</TABLE>
----------------
13
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES -- 14.9%
U.S. GOVERNMENT & AGENCIES -- 14.9%
Federal Home Loan Mortgage Corp. 6.00%
2006 ................................. $ 20,000 $ 19,868
Federal Home Loan Mortgage Corp. 6.50%
2022 ................................. 38,000 38,190
Federal Home Loan Mortgage Corp. 6.50%
2023 ................................. 10,000 9,962
Federal Home Loan Mortgage Corp. 6.55%
2022 ................................. 32,000 32,370
Federal Home Loan Mortgage Corp. 6.75%
2022 ................................. 105,000 106,241
Federal Home Loan Mortgage Corp. 7.00%
2023 ................................. 12,000 12,446
Federal Home Loan Mortgage Corp. 7.50%
2023 ................................. 17,552 18,002
Federal Home Loan Mortgage Corp. 7.75%
2022 ................................. 25,434 26,579
Federal Home Loan Mortgage Corp. 8.50%
2019 ................................. 31,741 33,496
Federal National Mortgage Association
5.65% 2005 ........................... 15,000 14,914
Federal National Mortgage Association
5.75% 2008 ........................... 230,000 225,455
Federal National Mortgage Association
7.00% 2006 ........................... 8,201 8,223
Federal National Mortgage Association
7.39% 2021 ........................... 27,948 28,894
Federal National Mortgage Association
9.35% 2020 ........................... 3,434 3,449
Government National Mortgage Association
7.00% 2022 ........................... 16,709 16,923
Government National Mortgage Association
7.25% 2027 ........................... 123,017 125,208
Government National Mortgage Association
7.50% 2023 ........................... 40,458 41,570
Government National Mortgage Association
8.50% 2017 ........................... 36,706 39,287
Government National Mortgage Association
9.00% 2021 ........................... 14,256 15,422
United States Treasury Bonds 6.38%
2027 ................................. 20,000 21,125
United States Treasury Bonds 6.63%
2027 ................................. 90,000 97,650
United States Treasury Bonds 7.13%
2023 ................................. 150,000 171,188
United States Treasury Bonds 7.50%
2016 ................................. 70,000 81,626
United States Treasury Bonds 8.13%
2021 ................................. 55,000 69,274
United States Treasury Bonds 8.50%
2020 ................................. 124,000 161,103
United States Treasury Bonds 11.88%
2003 ................................. 350,000 451,938
United States Treasury Bonds 12.00%
2013 ................................. 700,000 1,028,237
United States Treasury Notes 5.38%
2001 ................................. 100,000 99,406
United States Treasury Notes 5.50%
2008 ................................. 200,000 197,562
United States Treasury Notes 5.88%
2000 ................................. 245,000 246,149
United States Treasury Notes 6.25%
2002 ................................. 225,000 229,781
United States Treasury Notes 6.25%
2007 ................................. 185,000 191,388
United States Treasury Notes 6.63%
2001 ................................. 290,000 298,384
United States Treasury Notes 6.63%
2002 ................................. 50,000 51,664
United States Treasury Notes 6.63%
2007 ................................. 25,000 26,539
United States Treasury Notes 7.25%
2004 ................................. 285,000 307,578
United States Treasury Notes 8.50%
2000 ................................. 280,000 299,295
-------------
4,846,386
-------------
UTILITIES -- 0.5%
ELECTRIC UTILITIES -- 0.4%
Atlantic City Electric Co. 6.38%
2005 ................................. 20,000 20,251
Cleveland Electric Illuminating Co.
7.19% 2000* .......................... 15,000 15,226
Empresa Nacional de Electricidad SA
7.33% 2037 ........................... 25,000 24,921
Public Service Electric & Gas Co. 8.88%
2003 ................................. 11,000 12,305
UtiliCorp United, Inc. 6.88% 2004 ...... 40,000 41,231
GAS & PIPELINE UTILITIES -- 0.1%
KN Energy, Inc. 6.65% 2005 ............. 35,000 35,073
</TABLE>
- ----------------
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
TELEPHONE -- 0.0%
WorldCom, Inc. 7.55% 2004 .............. $ 15,000 $ 15,798
-------------
164,805
-------------
TOTAL BONDS & NOTES (cost $7,555,530)... 7,676,539
-------------
TOTAL INVESTMENT SECURITIES (cost
$27,222,816).......................... 30,631,533
-------------
<CAPTION>
SHORT-TERM SECURITIES -- 0.3%
<S> <C> <C>
- -----------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 0.1%
Chase Manhattan Corp. 8.77% due
2/19/99 .............................. 30,000 30,692
-------------
FOREIGN SHORT-TERM NOTES -- 0.2%
New Zealand Treasury Bill zero coupon
due 12/16/98 ....................(NZD) 150,000 78,069
-------------
TOTAL SHORT-TERM SECURITIES (cost
$110,260)............................. 108,761
-------------
<CAPTION>
REPURCHASE AGREEMENTS -- 7.7%
<S> <C> <C>
- -----------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 7.7%
PaineWebber, Inc. Joint Repurchase
Agreement (Note 3).................... 2,153,000 2,153,000
Swiss Bank Corp. Joint Repurchase
Agreement (Note 3).................... 350,000 350,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost
$2,503,000)........................... 2,503,000
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(cost $29,836,076) 102.3% 33,243,294
Liabilities in excess of other assets -- (2.3) (762,733)
----- -------------
NET ASSETS -- 100.0% $ 32,480,561
----- -------------
----- -------------
</TABLE>
- ------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
# Fair valued security; see Note 2
ADR -- American Depository Receipt
AUD -- Australian Dollar
NZD -- New Zealand Dollar
----------------
15
<PAGE>
<TABLE>
<CAPTION>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUD 309,000 USD 206,063 04/28/98 $ 1,599
*DEM 110,000 USD 61,312 04/28/98 1,736
FIM 300,000 USD 54,718 07/31/98 913
FIM 200,000 USD 36,308 07/31/98 439
FIM 770,000 USD 139,493 07/31/98 1,395
FIM 380,000 USD 69,834 08/07/98 1,656
ITL 45,000,000 USD 25,378 05/06/98 690
ITL 14,000,000 USD 7,821 05/06/98 140
ITL 14,000,000 USD 7,785 05/06/98 104
ITL 105,000,000 USD 58,761 05/06/98 1,157
ITL 111,000,000 USD 61,696 08/07/98 678
ITL 91,000,000 USD 51,146 08/07/98 1,122
ITL 34,500,000 USD 19,235 08/07/98 271
NLG 97,000 USD 47,271 07/02/98 487
NLG 25,000 USD 12,348 07/31/98 271
NLG 153,000 USD 75,683 08/07/98 1,741
*SEK 64,000 USD 8,073 08/07/98 37
*USD 5,598 SEK 45,000 08/07/98 52
*USD 3,737 SEK 30,000 08/07/98 29
-------
14,517
-------
<CAPTION>
GROSS
UNREALIZED
DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GBP 8,500 USD 13,862 05/06/98 (340)
GBP 10,000 USD 16,387 05/06/98 (321)
GBP 6,000 USD 9,856 05/06/98 (170)
GBP 11,000 USD 17,856 08/07/98 (444)
GBP 26,500 USD 43,382 08/07/98 (707)
*SEK 11,000 USD 1,375 08/07/98 (6)
USD 6,668 ITL 12,000,000 05/06/98 (84)
USD 7,335 NLG 15,000 08/07/98 (86)
USD 31,799 NLG 65,000 08/07/98 (386)
USD 14,689 NLG 30,000 08/07/98 (190)
*USD 61,274 DEM 110,000 04/28/98 (1,697)
-------
(4,431)
-------
Net Unrealized Appreciation............................ $ 10,086
-------
-------
</TABLE>
- ------------
* Represents fully offsetting forward foreign currency contracts that do not
have additional market risk but have continued counterparty settlement risk
<TABLE>
<S> <C> <C>
AUD -- Australian Dollar GBP -- Great British Pound SEK -- Swedish Krona
DEM -- Deutsche Mark ITL -- Italian Lira USD -- United States Dollar
FIM -- Finnish Markka NLG -- Netherlands Guilder
</TABLE>
See Notes to Financial Statements
- ----------------
16
<PAGE>
- ----------------
SEASONS SERIES TRUST
MULTI-MANAGED MODERATE
GROWTH PORTFOLIO INVESTMENT PORTFOLIO -- MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK -- 56.5% SHARES VALUE
<S> <C> <C>
- -----------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 2.8%
APPAREL & TEXTILES -- 0.4%
Oakley, Inc.+ .......................... 5,100 $ 58,969
R.P.M., Inc. ........................... 1,625 28,945
Sola International, Inc.+ .............. 800 33,150
AUTOMOTIVE -- 0.5%
Federal-Mogul Corp. .................... 1,965 104,513
Ford Motor Co. ......................... 700 45,369
HOUSING -- 0.0%
Krause's Furniture, Inc.+ .............. 3,600 13,500
RETAIL -- 1.9%
Abercrombie & Fitch Co., Class A+ ...... 1,100 46,269
Costco Cos., Inc.+ ..................... 1,750 93,406
CVS Corp. .............................. 400 30,200
Cybershop International, Inc.+ ......... 1,150 10,781
Duane Reade, Inc.+ ..................... 4,654 118,968
Federated Department Stores, Inc.+ ..... 700 36,269
Gap, Inc. .............................. 750 33,750
Office Depot, Inc.+ .................... 1,900 59,137
Pacific Sunwear of California+ ......... 500 20,750
Sunglass Hut International, Inc.+ ...... 7,500 78,750
U.S. Vision, Inc.+ ..................... 3,000 30,750
Wal-Mart Stores, Inc. .................. 800 40,650
Woolworth Corp.+ ....................... 1,000 25,000
-------------
909,126
-------------
CONSUMER STAPLES -- 1.1%
FOOD, BEVERAGE & TOBACCO -- 0.6%
DEKALB Genetics Corp., Class B ......... 1,270 84,931
Flowers Industries, Inc. ............... 1,000 23,437
Philip Morris Cos., Inc. ............... 1,200 50,025
RJR Nabisco Holdings Corp. ............. 700 21,919
UST, Inc. .............................. 600 19,350
HOUSEHOLD PRODUCTS -- 0.5%
Colgate-Palmolive Co. .................. 700 60,638
Gillette Co. ........................... 400 47,475
Procter & Gamble Co. ................... 600 50,625
-------------
358,400
-------------
ENERGY -- 1.3%
ENERGY SERVICES -- 0.3%
Baker Hughes, Inc. ..................... 600 24,150
Friede Goldman International, Inc.+ .... 900 25,987
</TABLE>
----------------
17
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
ENERGY SERVICES (CONTINUED)
Schlumberger Ltd. ...................... 300 $ 22,725
Smedvig ASA, Class B.................... 557 11,177
Transocean Offshore, Inc. .............. 500 25,719
ENERGY SOURCES -- 1.0%
Exxon Corp. ............................ 800 54,100
Global Marine, Inc.+ ................... 750 18,563
Mobil Corp. ............................ 400 30,650
Nabors Industries, Inc.+ ............... 750 17,766
Noble Affiliates, Inc. ................. 800 33,300
Ocean Rig ASA+ ......................... 41,561 42,517
Royal Dutch Petroleum Co. .............. 600 34,087
Smith International, Inc.+ ............. 1,135 62,496
Texaco, Inc. ........................... 700 42,175
-------------
445,412
-------------
FINANCE -- 8.3%
BANKS -- 3.7%
Ambanc Holding Co., Inc. ............... 230 4,370
Astoria Financial Corp. ................ 165 10,199
Banca Commerciale Italiana + ........... 28,186 140,621
Bank of New York Co., Inc. ............. 1,520 95,475
BankAmerica Corp. ...................... 1,600 132,200
BankBoston Corp. ....................... 300 33,075
Chase Manhattan Corp. .................. 300 40,462
Citicorp................................ 250 35,500
First American Corp. ................... 1,200 58,800
First Chicago NBD Corp. ................ 600 52,875
First Defiance Financial Corp. ......... 675 10,294
First Union Corp. ...................... 700 39,725
Golden State Bancorp, Inc.+ ............ 1,500 57,281
Hibernia Corp., Class A................. 2,800 57,575
Klamath First Bancorp, Inc. ............ 505 11,615
Mellon Bank Corp. ...................... 400 25,400
North Central Bancshares, Inc. ......... 90 2,003
PNC Bank Corp. ......................... 1,800 107,887
Provident Financial Holdings, Inc.+ .... 375 8,813
Queens County Bancorp, Inc. ............ 287 12,628
Sovereign Bancorp, Inc. ................ 3,000 54,562
Star Banc Corp. ........................ 895 52,917
Summit Bancorp. ........................ 1,100 55,069
TF Financial Corp. ..................... 65 1,820
U.S. Bancorp............................ 755 94,186
FINANCIAL SERVICES -- 2.8%
American Express Co. ................... 600 55,087
Associates First Capital Corp., Class
A...................................... 2,075 163,925
Beneficial Corp. ....................... 355 44,131
Charles Schwab Corp. ................... 1,455 55,290
CIT Group, Inc., Class A+ .............. 1,300 42,413
ContiFinancial Corp.+ .................. 800 24,400
</TABLE>
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18
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
Federal Agricultural Mortgage Corp.,
Class C+ .............................. 700 $ 39,200
Federal National Mortgage Association... 600 37,950
FirstSpartan Financial Corp. ........... 185 8,348
Healthcare Financial Partners, Inc.+ ... 1,200 56,850
Household International, Inc. .......... 865 119,154
Jefferies Group, Inc. .................. 200 11,300
Legg Mason, Inc. ....................... 500 29,656
Lehman Brothers Holdings, Inc. ......... 500 37,438
SLM Holding Corp. ...................... 2,015 87,904
T&W Financial Corp.+ ................... 2,000 57,500
Waddell & Reed Financial, Inc., Class
A+ .................................... 1,050 27,300
INSURANCE -- 1.8%
Aetna, Inc. ............................ 300 25,031
Allstate Corp. ......................... 300 27,581
Chubb Corp. ............................ 300 23,513
Conseco, Inc. .......................... 800 45,300
Reliance Group Holdings, Inc. .......... 4,000 76,500
Stirling Cooke Brown Holdings Ltd. ..... 500 13,250
Swiss Life Insurance & Pension Co. ..... 78 65,951
The Hartford Financial Services Group,
Inc. .................................. 400 43,400
UICI+ .................................. 1,690 58,411
UNUM Corp. ............................. 4,033 222,571
-------------
2,694,706
-------------
HEALTHCARE -- 7.5%
DRUGS -- 4.3%
Abbott Laboratories, Inc. .............. 400 30,125
Alkermes, Inc.+ ........................ 2,000 49,750
Alza Corp.+ ............................ 2,220 99,484
Bristol-Myers Squibb Co................. 700 73,019
Centocor, Inc.+ ........................ 500 22,313
Eli Lilly & Co. ........................ 2,185 130,281
ICN Pharmaceuticals, Inc. .............. 1,400 68,950
Inhale Therapeutic Systems.............. 1,000 27,125
Merck & Co., Inc. ...................... 500 64,187
Pfizer, Inc. ........................... 2,690 268,159
Sepracor, Inc.+ ........................ 1,000 42,625
Smithkline Beecham PLC.................. 8,569 107,942
Warner-Lambert Co. ..................... 2,460 418,969
HEALTH SERVICES -- 1.6%
Advance Paradigm, Inc.+ ................ 1,500 59,437
Assisted Living Concepts, Inc.+ ........ 1,000 21,625
Boron, LePore & Associates, Inc.+ ...... 1,700 56,313
Columbia/HCA Healthcare Corp. .......... 1,400 45,150
Novoste Corp.+ ......................... 2,200 57,063
Omnicare, Inc. ......................... 3,962 156,994
Sunrise Assisted Living, Inc.+ ......... 1,000 44,750
Tenet Healthcare Corp.+ ................ 1,100 39,944
United Healthcare Corp. ................ 300 19,425
</TABLE>
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19
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
HEALTH SERVICES (CONTINUED)
Vision Twenty-One, Inc.+ ............... 1,900 $ 22,325
MEDICAL PRODUCTS -- 1.6%
Arterial Vascular Engineering, Inc.+ ... 2,000 73,250
Baxter International, Inc. ............. 500 27,563
Cardinal Health, Inc. .................. 550 48,503
Cytyc Corp.+ ........................... 2,500 62,500
Endocardial Solutions, Inc.+ ........... 500 7,000
Johnson & Johnson ...................... 600 43,987
Medaphis Corp.+ ........................ 5,500 57,406
Respironics, Inc.+ ..................... 3,000 86,812
Sofamor Danek Group, Inc.+ ............. 1,480 126,170
-------------
2,459,146
-------------
INDUSTRIAL & COMMERCIAL -- 6.9%
AEROSPACE & MILITARY TECHNOLOGY -- 0.1%
Boeing Co. ............................. 700 36,488
BUSINESS SERVICES -- 4.4%
Aavid Thermal Technologies, Inc.+ ...... 3,900 120,412
Billing Concepts Corp.+ ................ 200 5,188
Cultural Access Worldwide, Inc.+ ....... 10,000 158,750
D.R. Horton, Inc. ...................... 1,500 31,875
Delta & Pine Land Co. .................. 2,595 134,940
DSET Corp.+ ............................ 3,000 56,062
Gartner Group, Inc., Class A+ .......... 700 26,163
GTECH Holdings Corp.+ .................. 400 15,550
Ha-Lo Industries, Inc.+ ................ 3,900 136,256
Metro One Telecommunications, Inc.+ .... 5,400 64,125
NCO Group, Inc.+ ....................... 1,000 25,000
Network Appliance, Inc. ................ 1,700 60,350
Owens-Illinois, Inc.+ .................. 500 21,625
Positron Fiber Systems Corp., Class
A+ .................................... 9,200 70,725
PSINet, Inc.+ .......................... 5,700 63,412
Ryland Group, Inc. ..................... 1,000 27,625
Sealed Air Corp.+ ...................... 1,745 114,297
Service Corp. International............. 900 38,194
Sysco Corp. ............................ 800 20,500
Toll Brothers, Inc.+ ................... 1,500 42,188
Tomra Systems ASA ...................... 417 11,048
Transition Systems, Inc.+ .............. 2,900 59,087
Unisys Corp.+ .......................... 4,000 76,000
USA Waste Services, Inc.+ .............. 1,000 44,563
ELECTRICAL EQUIPMENT -- 0.4%
Aeroflex, Inc.+ ........................ 4,200 55,650
North American Scientific, Inc.+ ....... 2,000 72,000
MACHINERY -- 0.2%
EVI, Inc.+ ............................. 1,000 46,312
Varco International, Inc.+ ............. 750 19,313
</TABLE>
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20
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (CONTINUED)
MULTI-INDUSTRY -- 1.4%
Corning, Inc. .......................... 800 $ 35,400
Raision Tehtaat Oy...................... 1,242 178,299
Republic Industries, Inc.+ ............. 1,100 28,394
Siebe PLC............................... 3,995 87,207
Tyco International Ltd.................. 2,040 111,435
TRANSPORTATION -- 0.4%
Atlas Air, Inc.+ ....................... 1,500 48,843
Burlington Northern Santa Fe Corp. ..... 400 41,600
Comair Holdings, Inc. .................. 900 23,850
Trans World Airlines, Inc. +............ 2,300 28,319
-------------
2,237,045
-------------
INFORMATION & ENTERTAINMENT -- 4.5%
BROADCASTING & MEDIA -- 3.6%
CBS Corp. .............................. 4,520 153,397
Chancellor Media Corp.+ ................ 3,845 176,389
Cinar Films, Inc., Class B+ ............ 1,000 42,625
Clear Channel Communications, Inc.+ .... 400 39,200
DoubleClick, Inc.+ ..................... 1,800 63,225
Forrester Research, Inc.+ .............. 500 17,750
Jacor Communications, Inc.+ ............ 1,000 59,000
Lamar Advertising Co., Class A+ ........ 1,868 65,363
Outdoor Systems, Inc.+ ................. 2,118 74,262
The Petersen Companies, Inc., Class
A+ .................................... 2,000 50,000
Time Warner, Inc. ...................... 5,342 384,624
Univision Communications, Inc., Class
A+ .................................... 1,250 46,563
ENTERTAINMENT PRODUCTS -- 0.2%
Hasbro, Inc. ........................... 700 24,719
Mattel, Inc. ........................... 800 31,700
LEISURE & TOURISM -- 0.7%
Hilton Hotels Corp. .................... 800 25,500
McDonald's Corp. ....................... 700 42,000
Outback Steakhouse, Inc.+ .............. 1,800 70,425
Primadonna Resorts, Inc.+ .............. 5,300 83,475
-------------
1,450,217
-------------
INFORMATION TECHNOLOGY -- 19.4%
COMMUNICATION EQUIPMENT -- 1.6%
CIENA Corp.+ ........................... 1,070 45,609
Lucent Technologies, Inc. .............. 900 115,087
Nokia Corp., Class A ADR................ 2,165 233,685
Tellabs, Inc.+ ......................... 500 33,563
U.S. West Media Group + ................ 2,310 80,272
COMPUTERS & BUSINESS EQUIPMENT -- 1.6%
Computer Sciences Corp. ................ 600 33,000
Dell Computer Corp.+ ................... 1,370 92,817
EMC Corp.+ ............................. 2,460 93,019
</TABLE>
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21
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
COMPUTERS & BUSINESS
EQUIPMENT (CONTINUED)
HBO & Co. .............................. 3,005 $ 181,427
Hewlett-Packard Co. .................... 600 38,025
Honeywell, Inc. ........................ 400 33,075
International Business Machines
Corp. ................................. 400 41,550
ELECTRONICS -- 3.3%
Analog Devices, Inc.+ .................. 7,305 242,891
Applied Materials, Inc.+ ............... 900 31,781
ASM Lithography Holdings NV+ ........... 2,205 203,825
ATMI, Inc.+ ............................ 1,900 57,475
Emerson Electric Co. ................... 700 45,631
General Electric Co. ................... 900 77,569
Hubbell, Inc., Class B.................. 500 25,188
Intel Corp. ............................ 400 31,225
Lam Research Corp.+ .................... 600 11,250
Maxim Integrated Products, Inc.+ ....... 1,550 56,478
Molex, Inc., Class A.................... 1,000 26,813
Motorola, Inc. ......................... 500 30,312
Pittway Corp., Class A ................. 2,745 197,640
Vitesse Semiconductor Corp.+ ........... 945 44,563
SOFTWARE -- 9.5%
America Online, Inc.+ .................. 5,362 366,292
Applied Voice Technology, Inc.+ ........ 1,000 39,000
Aspen Technology, Inc.+ ................ 3,800 156,750
At Home Corp., Series A+ ............... 2,675 90,448
Cadence Design Systems, Inc.+ .......... 5,055 175,029
Caere Corp.+ ........................... 5,000 54,375
Cambridge Technology Partners, Inc.+ ... 800 39,650
Cisco Systems, Inc.+ ................... 4,365 298,457
Computer Associates International,
Inc. .................................. 800 46,200
Computer Task Group, Inc. .............. 1,000 41,188
Compuware Corp.+ ....................... 1,000 49,375
CrossKeys Systems Corp.+ ............... 1,000 11,250
Intuit, Inc.+ .......................... 1,375 66,516
ISS Group, Inc.+ ....................... 500 19,438
J.D. Edwards & Co.+ .................... 3,400 111,137
Keane, Inc.+ ........................... 1,100 62,150
Microsoft Corp.+ ....................... 5,015 448,842
MindSpring Enterprises, Inc.+ .......... 1,000 64,250
Oracle Corp.+ .......................... 900 28,406
Parametric Technology Corp.+ ........... 13,075 435,561
Pegrine Systems, Inc.+ ................. 3,200 61,200
PeopleSoft, Inc.+ ...................... 2,260 119,074
Reynolds & Reynolds Co., Class A........ 800 17,500
Sapient Corp.+ ......................... 1,310 62,061
Segue Software, Inc.+ .................. 700 9,100
Sterling Commerce, Inc.+ ............... 1,300 60,287
Storage Technology Corp.+ .............. 750 57,047
VERITAS Software Corp.+ ................ 870 51,439
VocalTec Communications Ltd.+ .......... 900 18,450
Wind River Systems+ .................... 1,320 52,470
</TABLE>
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22
<PAGE>
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<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
TELECOMMUNICATIONS -- 3.4%
Alltel Corp. ........................... 1,000 $ 43,688
Clearnet Communications, Inc., Class
A ..................................... 4,000 56,750
Comcast Corp., Class A+ ................ 7,460 263,431
Frontier Corp. ......................... 1,700 55,356
GST Telecommunications, Inc+ ........... 3,700 55,731
Intermedia Communications, Inc.+ ....... 700 55,737
IWL Communications, Inc. ............... 1,000 17,875
Pacific Gateway Exchange, Inc.+ ........ 1,200 68,700
RELTEC Corp.+ .......................... 250 8,859
Saville Systems PLC ADR+ ............... 500 25,625
Star Telecommunications, Inc.+ ......... 900 50,063
STARTEC Global Communications Corp.+ ... 2,400 60,000
Tele-Communications, Inc., Series A+ ... 9,127 283,793
Teleport Communications Group Inc.,
Class A+ .............................. 1,200 70,500
-------------
6,332,820
-------------
MATERIALS -- 2.1%
CHEMICALS -- 1.8%
Cabot Corp. ............................ 1,700 62,687
du Pont (E.I.) de Nemours & Co. ........ 700 47,600
Monsanto Co. ........................... 7,680 399,360
Solutia, Inc. .......................... 2,325 69,169
FOREST PRODUCTS -- 0.2%
American Pad & Paper Co.+ .............. 500 3,625
Boise Cascade Corp. .................... 1,400 50,487
Sonoco Products Co. .................... 300 12,019
METALS & MINERALS -- 0.1%
EASCO, Inc. ............................ 1,000 15,250
Martin Marietta Materials, Inc. ........ 600 25,913
-------------
686,110
-------------
REAL ESTATE -- 0.2%
REAL ESTATE COMPANIES -- 0.0%
The Rouse Co. .......................... 500 15,750
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
Crescent Real Estate Equities Co. ...... 700 25,200
ElderTrust+ ............................ 1,000 17,875
Equity Office Properties Trust.......... 300 9,187
-------------
68,012
-------------
UTILITIES -- 2.4%
ELECTRIC UTILITIES -- 0.2%
Duke Energy Corp. ...................... 700 41,694
GPU, Inc. .............................. 900 39,825
GAS & PIPELINE UTILITIES -- 0.3%
Consolidated Natural Gas Co. ........... 700 40,381
Enron Corp. ............................ 700 32,463
</TABLE>
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23
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
GAS & PIPELINE UTILITIES (CONTINUED)
US Filter Corp.+ ....................... 600 $ 21,075
TELEPHONE -- 1.9%
Ameritech Corp. ........................ 900 44,494
AT&T Corp. ............................. 800 52,500
Bell Atlantic Corp. .................... 330 33,825
Century Telephone Enterprises, Inc. .... 950 58,069
Cincinnati Bell, Inc. .................. 1,800 64,125
GTE Corp. .............................. 600 35,925
MCI Communications Corp. ............... 400 19,800
SBC Communications, Inc. ............... 1,200 52,350
Telecom Italia SpA...................... 12,331 97,166
Winstar Communications, Inc.+ .......... 1,500 64,125
WorldCom, Inc.+ ........................ 2,225 95,814
-------------
793,631
-------------
TOTAL COMMON STOCK (cost $15,811,458)... 18,434,625
-------------
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 37.9% AMOUNT
<S> <C> <C>
- -----------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 0.3%
RETAIL -- 0.3%
J.C. Penney Co., Inc. 7.40% 2037 ....... $ 40,000 43,157
Fred Meyer, Inc. 7.38% 2005............. 40,000 40,113
-------------
83,270
-------------
CONSUMER STAPLES -- 0.2%
FOOD, BEVERAGE & TOBACCO -- 0.2%
Panamerican Beverages, Inc. 8.13%
2003 .................................. 60,000 63,781
-------------
ENERGY -- 0.3%
ENERGY SOURCES -- 0.3%
Newfield Exploration Co., Series B 7.45%
2007*.................................. 25,000 24,892
Petroleos Mexicano 9.00% 2007........... 47,000 48,116
YPF Sociedad Anonima 8.00% 2004......... 30,000 30,476
-------------
103,484
-------------
FINANCE -- 7.6%
BANKS -- 2.2%
Banc One Corp. 8.00% 2027............... 34,000 38,467
Bank One Columbus 7.38% 2002............ 45,000 47,002
Banponce Financial Corp. 6.75% 2001..... 35,000 35,402
Credit National 7.00% 2005.............. 30,000 30,017
Export Import Bank of Korea 6.50%
2006................................... 60,000 51,872
First Chicago NBD Corp. 7.25% 2004...... 110,000 115,115
First Republic Bancorp 7.75% 2012....... 45,000 46,107
First Union-Lehman Brothers Commercial
Mortgage Corp. 6.60% 2029.............. 105,000 106,458
Korea Development Bank 7.13% 2001....... 20,000 18,807
NBD Bank SA 8.25% 2024.................. 45,000 53,146
NCNB Co. 9.38% 2009..................... 48,000 59,161
</TABLE>
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24
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
BANKS (CONTINUED)
United States Bancorp 7.50% 2026........ $ 95,000 $ 103,160
FINANCIAL SERVICES -- 5.2%
Allstate Financing II 7.83% 2045........ 44,000 45,046
Asset Securitization Corp. 6.66% 2041
#...................................... 75,000 76,523
Associates Corp. of North America 7.63%
2004................................... 110,000 117,812
CS First Boston Mortgage Securities
Corp. 7.24% 2029....................... 100,000 105,125
Dime Capital Trust I, Series A 9.33%
2027................................... 35,000 39,473
Finova Capital Corp. 6.63% 2001......... 100,000 101,229
Finova Capital Corp., Series C 6.39%
2002................................... 45,000 45,219
Fleet Mortgage Group, Inc. 6.84% 2003... 50,000 50,845
Ford Motor Credit Company 7.02% 2000.... 100,000 102,186
GE Capital Mortgage Services, Inc. 6.25%
2023................................... 32,050 31,870
Lubermens Mutual Casualty Co. 8.30%
2037*.................................. 70,000 74,446
Morgan Stanley Capital I, Inc. 7.22%
2007................................... 100,000 105,563
Popular North America, Inc. 6.63%
2002................................... 50,000 50,718
Private Export Funding Corp. 6.31%
2004................................... 100,000 102,278
Private Export Funding Corp. 6.62%
2005................................... 220,000 228,464
Private Export Funding Corp. 7.03%
2003................................... 45,000 47,385
Private Export Funding Corp. 7.30%
2002................................... 225,000 236,108
Private Export Funding Corp. 7.90%
2000................................... 55,000 57,208
US West Capital Funding, Inc. 6.95%
2037................................... 75,000 78,189
INSURANCE -- 0.2%
Cigna Corp. 7.88% 2027.................. 34,000 36,990
Jackson National Life Insurance Co.
8.15% 2027*............................ 40,000 43,944
-------------
2,481,335
-------------
HEALTHCARE -- 0.7%
HEALTH SERVICES -- 0.5%
Allegiance Corp. 7.00% 2026............. 110,000 113,650
Tenet Healthcare Corp. 7.88% 2003....... 40,000 40,600
MEDICAL PRODUCTS -- 0.2%
Beckman Instruments, Inc. 7.10% 2003*... 70,000 70,138
-------------
224,388
-------------
INDUSTRIAL & COMMERCIAL -- 0.6%
MACHINERY -- 0.2%
Cincinnati Milacron, Inc. 7.88% 2000.... 65,000 66,512
TRANSPORTATION -- 0.4%
AMR Corp 10.20% 2020.................... 50,000 66,460
Continental Airlines 6.65% 2019......... 75,000 74,581
-------------
207,553
-------------
INFORMATION & ENTERTAINMENT -- 0.9%
BROADCASTING & MEDIA -- 0.9%
Comcast Cable Communications 8.50%
2027................................... 35,000 40,876
News America Holdings, Inc. 8.00%
2016................................... 110,000 118,536
Scholastic Corp. 7.00% 2003............. 70,000 71,753
</TABLE>
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25
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION & ENTERTAINMENT (CONTINUED)
BROADCASTING & MEDIA (CONTINUED)
Viacom, Inc. 7.75% 2005................. $ 65,000 $ 68,169
-------------
299,334
-------------
INFORMATION TECHNOLOGY -- 0.3%
TELECOMMUNICATIONS -- 0.3%
Tele-Communications, Inc. 7.25% 2005.... 50,000 51,170
Tele-Communications, Inc. 9.25% 2002.... 35,000 38,306
-------------
89,476
-------------
MATERIALS -- 0.2%
CHEMICALS -- 0.2%
ICI Wilmington, Inc. 6.95% 2004......... 65,000 66,886
-------------
MUNICIPAL BONDS -- 0.9%
MUNICIPAL BONDS -- 0.9%
Hudson County New Jersey Improvement
Authority Facility 6.55% 2002.......... 85,000 86,455
Huntsville Alabama Solid Waste Disposal
Authority 5.95% 2003................... 85,000 83,558
Miami Florida Revenue 7.25% 2003........ 110,000 115,328
-------------
285,341
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.7%
FOREIGN GOVERNMENT -- 1.7%
Australian Government 6.75% 2006 .......
(AUD) 530,000 375,409
Republic of Argentina 11.00% 2006....... 50,000 55,625
Republic of Columbia 7.25% 2004......... 49,000 46,803
Republic of Columbia 7.63% 2007......... 33,000 31,103
Republic of Lithuania 7.13% 2002*....... 35,000 34,300
-------------
543,240
-------------
REAL ESTATE -- 0.6%
REAL ESTATE COMPANIES -- 0.3%
Post Apartment Homes LP 7.02% 2001...... 110,000 111,915
REAL ESTATE INVESTMENT TRUSTS -- 0.3%
Equity Office Properties Operating LP
6.38% 2003*............................ 100,000 98,998
-------------
210,913
-------------
U.S. GOVERNMENT & AGENCIES -- 22.7%
U.S. GOVERNMENT & AGENCIES -- 22.7%
Federal Home Loan Mortgage Corp. 6.00%
2006................................... 35,000 34,770
Federal Home Loan Mortgage Corp. 6.50%
2022................................... 122,000 122,610
Federal Home Loan Mortgage Corp. 6.50%
2023................................... 20,000 19,925
Federal Home Loan Mortgage Corp. 6.55%
2022................................... 32,000 32,370
Federal Home Loan Mortgage Corp. 6.75%
2022................................... 130,000 131,537
Federal Home Loan Mortgage Corp. 7.00%
2023................................... 25,000 25,930
Federal Home Loan Mortgage Corp. 7.50%
2023................................... 17,552 18,002
Federal Home Loan Mortgage Corp. 7.75%
2022................................... 39,741 41,529
</TABLE>
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26
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES (CONTINUED)
Federal Home Loan Mortgage Corp. 8.50%
2019................................... $ 58,948 $ 62,206
Federal National Mortgage Association
5.65% 2005............................. 30,000 29,828
Federal National Mortgage Association
5.75% 2008............................. 160,000 156,839
Federal National Mortgage Association
7.00% 2006............................. 16,401 16,447
Federal National Mortgage Association
7.39% 2021............................. 46,581 48,156
Federal National Mortgage Association
9.35% 2020............................. 6,868 6,897
Government National Mortgage Association
7.00% 2022............................. 17,254 17,475
Government National Mortgage Association
7.00% 2023............................. 17,006 17,219
Government National Mortgage Association
7.25% 2027............................. 242,569 246,889
Government National Mortgage Association
7.50% 2024............................. 63,227 64,886
Government National Mortgage Association
8.50% 2017............................. 67,295 72,026
Government National Mortgage Association
9.00% 2021............................. 21,098 22,825
United States Treasury Bonds 6.38%
2027................................... 15,000 15,844
United States Treasury Bonds 6.63%
2027................................... 90,000 97,650
United States Treasury Bonds 7.13%
2023................................... 265,000 302,431
United States Treasury Bonds 7.50%
2016................................... 75,000 87,457
United States Treasury Bonds 8.13%
2021................................... 75,000 94,465
United States Treasury Bonds 8.50%
2020................................... 300,000 389,766
United States Treasury Bonds 9.25%
2016................................... 40,000 54,193
United States Treasury Bonds 11.88%
2003................................... 625,000 807,031
United States Treasury Bonds 12.00%
2013................................... 1,200,000 1,762,692
United States Treasury Notes 5.38%
2001................................... 100,000 99,406
United States Treasury Notes 5.50%
2008................................... 200,000 197,562
United States Treasury Notes 5.75%
2002................................... 100,000 100,281
United States Treasury Notes 5.88%
2000................................... 245,000 246,149
United States Treasury Notes 6.13%
2007................................... 100,000 102,844
United States Treasury Notes 6.25%
2002................................... 150,000 153,187
United States Treasury Notes 6.25%
2007................................... 120,000 124,144
United States Treasury Notes 6.63%
2001................................... 565,000 581,334
United States Treasury Notes 6.63%
2002................................... 50,000 51,664
United States Treasury Notes 6.63%
2007................................... 25,000 26,539
United States Treasury Notes 7.25%
2004................................... 185,000 199,656
United States Treasury Notes 8.50%
2000................................... 670,000 716,170
-------------
7,398,831
-------------
UTILITIES -- 0.9%
ELECTRIC UTILITIES -- 0.6%
Atlantic City Electric Co. 6.38% 2005... 45,000 45,564
Cleveland Electric Illuminating Co.
7.19% 2000*............................ 20,000 20,302
Empresa Nacional de Electricidad SA
7.33% 2037............................. 45,000 44,857
Public Service Electric & Gas Co. 8.88%
2003................................... 21,000 23,492
UtiliCorp United, Inc. 6.88% 2004....... 70,000 72,154
GAS & PIPELINE UTILITIES -- 0.2%
KN Energy, Inc. 6.65% 2005.............. 65,000 65,134
TELEPHONE -- 0.1%
Worldcom, Inc. 7.55% 2004............... 35,000 36,863
-------------
308,366
-------------
TOTAL BONDS & NOTES (cost
$12,152,576)........................... 12,366,198
-------------
TOTAL INVESTMENT SECURITIES (cost
$27,964,034)........................... 30,800,823
-------------
</TABLE>
----------------
27
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 0.6% AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 0.2%
Chase Manhattan Corp. 8.77% due
2/19/99................................ $ 50,000 $ 51,153
-------------
FOREIGN SHORT-TERM NOTES -- 0.4%
New Zealand Treasury Bill zero coupon
due 12/16/98 .................... (NZD) 270,000 140,525
-------------
TOTAL SHORT-TERM SECURITIES (cost
$194,381).............................. 191,678
-------------
<CAPTION>
REPURCHASE AGREEMENTS -- 6.9%
<S> <C> <C>
- -----------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 6.9%
PaineWebber, Inc. Joint Repurchase
Agreement (Note 3) .................... 1,566,000 1,566,000
Swiss Bank Corp. Joint Repurchase
Agreement (Note 3) .................... 675,000 675,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost
$2,241,000)............................ 2,241,000
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(cost $30,399,415) 101.9% 33,233,501
Liabilities in excess of other assets -- (1.9) (611,337)
--------- -------------
NET ASSETS -- 100.0% $ 32,622,164
--------- -------------
--------- -------------
</TABLE>
- ------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyer
# Fair valued security; see Note 2
ADR -- American Depository Receipt
AUD -- Australian Dollar
NZD -- New Zealand Dollar
- ----------------
28
<PAGE>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
AUD 565,000 USD 376,782 04/28/98 $ 2,924
*DEM 193,000 USD 107,575 04/28/98 3,045
FIM 200,000 USD 36,478 07/31/98 609
FIM 145,000 USD 26,323 07/31/98 318
FIM 555,000 USD 100,543 07/31/98 1,006
FIM 280,000 USD 51,457 08/07/98 1,221
ITL 35,000,000 USD 19,738 05/06/98 537
ITL 8,000,000 USD 4,469 05/06/98 80
ITL 11,000,000 USD 6,117 05/06/98 82
ITL 72,000,000 USD 40,293 05/06/98 793
ITL 80,000,000 USD 44,466 08/07/98 488
ITL 66,000,000 USD 37,095 08/07/98 814
ITL 24,400,000 USD 13,604 08/07/98 191
NLG 65,000 USD 31,676 07/02/98 326
NLG 15,000 USD 7,409 07/31/98 163
NLG 115,000 USD 56,886 08/07/98 1,309
*SEK 47,000 USD 5,928 08/07/98 27
*USD 4,105 SEK 33,000 08/07/98 38
*USD 2,741 SEK 22,000 08/07/98 21
-------
13,992
-------
<CAPTION>
GROSS
UNREALIZED
DEPRECIATION
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
GBP 6,800 USD 11,090 05/06/98 (272)
GBP 7,000 USD 11,471 05/06/98 (225)
GBP 4,000 USD 6,571 05/06/98 (112)
GBP 8,000 USD 12,986 08/07/98 (323)
GBP 19,200 USD 31,431 08/07/98 (512)
*SEK 8,000 USD 1,000 08/07/98 (5)
USD 6,668 ITL 12,000,000 05/06/98 (84)
USD 5,379 NLG 11,000 08/07/98 (63)
USD 21,525 NLG 44,000 08/07/98 (261)
USD 9,792 NLG 20,000 08/07/98 (127)
*USD 107,507 DEM 193,000 04/28/98 (2,978)
-------
(4,962)
-------
Net Unrealized Appreciation................ $ 9,030
-------
-------
</TABLE>
- ------------
* Represents fully offsetting forward foreign currency contracts that do not
have additional market risk but have continued counterparty settlement risk
<TABLE>
<S> <C> <C>
AUD -- Australian Dollar GBP -- Great British Pound SEK -- Swedish Krona
DEM -- Deutsche Mark ITL -- Italian Lira USD -- United States Dollar
FIM -- Finnish Markka NLG -- Netherlands Guilder
</TABLE>
See Notes to Financial Statements
----------------
29
<PAGE>
- ----------------
SEASONS SERIES TRUST
MULTI-MANAGED INCOME/EQUITY
PORTFOLIO INVESTMENT PORTFOLIO -- MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK -- 29.9% SHARES VALUE
<S> <C> <C>
- -----------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 1.6%
APPAREL & TEXTILES -- 0.3%
Oakley, Inc.+ .......................... 2,500 $ 28,906
R.P.M., Inc. ........................... 1,687 30,050
Sola International, Inc.+ .............. 600 24,862
AUTOMOTIVE -- 0.4%
Federal-Mogul Corp. .................... 1,015 53,985
Ford Motor Co. ......................... 700 45,369
RETAIL -- 0.9%
Costco Cos., Inc.+ ..................... 895 47,771
CVS Corp. .............................. 300 22,650
Duane Reade, Inc.+ ..................... 2,327 59,484
Federated Department Stores, Inc.+ ..... 800 41,450
Office Depot, Inc.+ .................... 1,000 31,125
Wal-Mart Stores, Inc. .................. 800 40,650
-------------
426,302
-------------
CONSUMER STAPLES -- 1.0%
FOOD, BEVERAGE & TOBACCO -- 0.5%
DEKALB Genetics Corp., Class B ......... 650 43,469
Flowers Industries, Inc. ............... 1,000 23,437
Philip Morris Cos., Inc. ............... 800 33,350
RJR Nabisco Holdings Corp. ............. 600 18,788
UST, Inc. .............................. 400 12,900
HOUSEHOLD PRODUCTS -- 0.5%
Colgate-Palmolive Co. .................. 500 43,312
Gillette Co. ........................... 400 47,475
Procter & Gamble Co. ................... 400 33,750
-------------
256,481
-------------
ENERGY -- 1.0%
ENERGY SERVICES -- 0.2%
Baker Hughes, Inc. ..................... 500 20,125
Schlumberger Ltd. ...................... 300 22,725
Smedvig ASA, Class B ................... 279 5,598
ENERGY SOURCES -- 0.8%
Exxon Corp. ............................ 500 33,812
Mobil Corp. ............................ 400 30,650
Noble Affiliates, Inc. ................. 700 29,138
Ocean Rig ASA+ ......................... 19,699 20,152
Royal Dutch Petroleum Co. .............. 300 17,044
</TABLE>
- ----------------
30
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
ENERGY SOURCES (CONTINUED)
Smith International, Inc.+ ............. 575 $ 31,661
Texaco, Inc. ........................... 600 36,150
-------------
247,055
-------------
FINANCE -- 4.6%
BANKS -- 1.7%
Ambanc Holding Co., Inc. ............... 115 2,185
Astoria Financial Corp. ................ 85 5,254
Banca Commerciale Italiana + ........... 14,192 70,804
Bank of New York Co., Inc. ............. 775 48,680
BankAmerica Corp. ...................... 865 71,471
BankBoston Corp. ....................... 200 22,050
Chase Manhattan Corp. .................. 300 40,463
Citicorp ............................... 250 35,500
First Defiance Financial Corp. ......... 345 5,261
First Union Corp. ...................... 500 28,375
Klamath First Bancorp, Inc. ............ 260 5,980
Mellon Bank Corp. ...................... 400 25,400
North Central Bancshares, Inc. ......... 50 1,112
Provident Financial Holdings, Inc. + ... 190 4,465
Queens County Bancorp, Inc. ............ 147 6,468
Star Banc Corp. ........................ 455 26,902
TF Financial Corp. ..................... 35 980
U.S. Bancorp ........................... 385 48,029
FINANCIAL SERVICES -- 1.7%
American Express Co. ................... 400 36,725
Associates First Capital Corp., Class
A ..................................... 1,070 84,530
Beneficial Corp. ....................... 175 21,754
Capital One Financial Corp. ............ 1,000 78,875
Charles Schwab Corp. ................... 750 28,500
CIT Group, Inc., Class A+ .............. 1,200 39,150
ContiFinancial Corp.+ .................. 700 21,350
Federal National Mortgage
Association ........................... 400 25,300
FirstSpartan Financial Corp. ........... 95 4,287
Household International, Inc. .......... 440 60,610
SLM Holding Corp. ...................... 1,027 44,803
INSURANCE -- 1.2%
Aetna, Inc. ............................ 400 33,375
Allstate Corp. ......................... 300 27,581
Chubb Corp. ............................ 300 23,513
Conseco, Inc. .......................... 500 28,313
Swiss Life Insurance & Pension Co. ..... 20 16,910
The Hartford Financial Services Group,
Inc. .................................. 300 32,550
UICI+ .................................. 750 25,922
UNUM Corp. ............................. 2,085 115,066
-------------
1,198,493
-------------
</TABLE>
----------------
31
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 3.8%
DRUGS -- 2.6%
Abbott Laboratories, Inc. .............. 400 $ 30,125
Alza Corp.+ ............................ 1,140 51,086
Bristol-Myers Squibb Co. ............... 500 52,156
Eli Lilly & Co. ........................ 1,265 75,426
Merck & Co., Inc. ...................... 400 51,350
Pfizer, Inc. ........................... 1,520 151,525
Smithkline Beecham PLC ................. 4,378 55,149
Warner-Lambert Co. ..................... 1,270 216,297
HEALTH SERVICES -- 0.7%
Columbia/HCA Healthcare Corp. .......... 1,000 32,250
Omnicare, Inc. ......................... 2,049 81,192
Tenet Healthcare Corp.+ ................ 1,100 39,944
United Healthcare Corp. ................ 300 19,425
MEDICAL PRODUCTS -- 0.5%
Baxter International, Inc. ............. 400 22,050
Cardinal Health, Inc. .................. 280 24,692
Johnson & Johnson ...................... 400 29,325
Sofamor Danek Group, Inc.+ ............. 755 64,364
-------------
996,356
-------------
INDUSTRIAL & COMMERCIAL -- 2.3%
AEROSPACE & MILITARY TECHNOLOGY -- 0.1%
Boeing Co. ............................. 600 31,275
BUSINESS SERVICES -- 1.2%
Cendant Corp.+ ......................... 1,000 39,625
Delta & Pine Land Co. .................. 1,310 68,120
Gartner Group, Inc., Class A+ .......... 400 14,950
GTECH Holdings Corp.+ .................. 300 11,663
Owens-Illinois, Inc.+ .................. 500 21,625
Sealed Air Corp.+ ...................... 860 56,330
Service Corp. International ............ 800 33,950
Sysco Corp. ............................ 600 15,375
Tomra Systems ASA ...................... 215 5,696
USA Waste Services, Inc.+ .............. 600 26,737
MULTI-INDUSTRY -- 0.9%
Corning, Inc. .......................... 300 13,275
Raision Tehtaat Oy ..................... 642 92,164
Republic Industries, Inc.+ ............. 900 23,231
Siebe PLC .............................. 1,970 43,003
Tyco International Ltd. ................ 1,055 57,630
TRANSPORTATION -- 0.1%
Burlington Northern Santa Fe Corp. ..... 300 31,200
-------------
585,849
-------------
</TABLE>
- ----------------
32
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION & ENTERTAINMENT -- 1.9%
BROADCASTING & MEDIA -- 1.5%
CBS Corp. .............................. 2,335 $ 79,244
Chancellor Media Corp.+ ................ 1,205 55,279
Lamar Advertising Co., Class A+ ........ 951 33,285
Outdoor Systems, Inc.+ ................. 1,080 37,868
Time Warner, Inc. ...................... 2,757 198,504
ENTERTAINMENT PRODUCTS -- 0.2%
Hasbro, Inc. ........................... 600 21,188
Mattel, Inc. ........................... 600 23,775
LEISURE & TOURISM -- 0.2%
Hilton Hotels Corp. .................... 500 15,937
McDonald's Corp. ....................... 500 30,000
-------------
495,080
-------------
INFORMATION TECHNOLOGY -- 10.3%
COMMUNICATION EQUIPMENT -- 1.0%
CIENA Corp.+ ........................... 550 23,444
Lucent Technologies, Inc. .............. 300 38,362
Nokia Corp., Class A ADR ............... 1,120 120,890
Tellabs, Inc.+ ......................... 400 26,850
U.S. West Media Group + ................ 1,180 41,005
COMPUTERS & BUSINESS EQUIPMENT -- 1.0%
Computer Sciences Corp. ................ 400 22,000
Dell Computer Corp.+ ................... 700 47,425
EMC Corp.+ ............................. 1,260 47,644
HBO & Co. .............................. 1,020 61,582
Hewlett-Packard Co. .................... 300 19,013
Honeywell, Inc. ........................ 400 33,075
International Business Machines
Corp. ................................. 300 31,162
ELECTRONICS -- 2.2%
Analog Devices, Inc.+ .................. 3,740 124,355
Applied Materials, Inc.+ ............... 900 31,781
ASM Lithography Holdings NV+ ........... 625 57,773
Emerson Electric Co. ................... 500 32,594
General Electric Co. ................... 900 77,569
Hubbell, Inc., Class B ................. 400 20,150
Intel Corp. ............................ 400 31,225
Maxim Integrated Products, Inc.+ ....... 790 28,786
Molex, Inc., Class A ................... 900 24,131
Motorola, Inc. ......................... 300 18,187
Pittway Corp. .......................... 1,380 99,360
Vitesse Semiconductor Corp.+ ........... 485 22,871
SOFTWARE -- 4.8%
America Online, Inc.+ .................. 2,355 160,876
Aspen Technology, Inc.+ ................ 1,950 80,437
At Home Corp., Series A+ ............... 1,275 43,111
Cadence Design Systems, Inc.+ .......... 1,785 61,806
Cisco Systems, Inc.+ ................... 2,517 172,100
</TABLE>
----------------
33
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
SOFTWARE (CONTINUED)
Computer Associates International,
Inc. .................................. 800 $ 46,200
Intuit, Inc.+ .......................... 705 34,104
Microsoft Corp.+ ....................... 2,680 239,860
Oracle Corp.+ .......................... 800 25,250
Parametric Technology Corp.+ ........... 6,690 222,861
PeopleSoft, Inc.+ ...................... 1,150 60,591
Reynolds & Reynolds Co., Class A ....... 800 17,500
Sapient Corp.+ ......................... 650 30,794
VERITAS Software Corp.+ ................ 450 26,606
Wind River Systems+ .................... 680 27,030
TELECOMMUNICATIONS -- 1.3%
Comcast Corp., Class A+ ................ 3,855 136,130
Frontier Corp. ......................... 1,500 48,844
Tele-Communications, Inc., Series A+ ... 4,715 146,607
Teleport Communications Group Inc.,
Class A+ .............................. 200 11,750
-------------
2,673,691
-------------
MATERIALS -- 1.5%
CHEMICALS -- 1.2%
Cabot Corp. ............................ 350 12,906
du Pont (E.I.) de Nemours & Co. ........ 800 54,400
Monsanto Co. ........................... 3,965 206,180
Solutia, Inc. .......................... 1,150 34,213
FOREST PRODUCTS -- 0.2%
American Pad & Paper Co.+ .............. 400 2,900
Boise Cascade Corp. .................... 1,200 43,275
Sonoco Products Co. .................... 200 8,013
METALS & MINERALS -- 0.1%
EASCO, Inc. ............................ 500 7,625
Martin Marietta Materials, Inc. ........ 300 12,956
-------------
382,468
-------------
REAL ESTATE -- 0.2%
REAL ESTATE COMPANIES -- 0.0%
The Rouse Co. .......................... 200 6,300
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
Crescent Real Estate Equities Co. ...... 500 18,000
ElderTrust+ ............................ 1,000 17,875
Equity Office Properties Trust ......... 200 6,125
-------------
48,300
-------------
UTILITIES -- 1.7%
ELECTRIC UTILITIES -- 0.3%
Duke Energy Corp. ...................... 700 41,694
GPU, Inc. .............................. 800 35,400
</TABLE>
- ----------------
34
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
GAS & PIPELINE UTILITIES -- 0.3%
Consolidated Natural Gas Co. ........... 500 $ 28,844
Enron Corp. ............................ 500 23,187
US Filter Corp.+ ....................... 600 21,075
TELEPHONE -- 1.1%
Ameritech Corp. ........................ 800 39,550
AT&T Corp. ............................. 500 32,812
Bell Atlantic Corp. .................... 330 33,825
GTE Corp. .............................. 500 29,938
MCI Communications Corp. ............... 500 24,750
SBC Communications, Inc. ............... 800 34,900
Telecom Italia SpA ..................... 6,291 49,572
WorldCom, Inc.+ ........................ 1,135 48,876
-------------
444,423
-------------
TOTAL COMMON STOCK (cost $6,415,338).... 7,754,498
-------------
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 61.7% AMOUNT
<S> <C> <C>
- -----------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 0.4%
RETAIL -- 0.4%
J.C. Penney Co., Inc. 7.40% 2037........ $ 50,000 53,946
Fred Meyer, Inc. 7.38% 2005............. 55,000 55,156
-------------
109,102
-------------
CONSUMER STAPLES -- 0.3%
FOOD, BEVERAGE & TOBACCO -- 0.3%
Panamerican Beverages, Inc. 8.13%
2003................................... 70,000 74,411
-------------
ENERGY -- 0.4%
ENERGY SOURCES -- 0.4%
Newfield Exploration Co., Series B 7.45%
2007*.................................. 20,000 19,913
Petroleos Mexicano 9.00% 2007........... 52,000 53,235
YPF Sociedad Anonima 8.00% 2004......... 40,000 40,635
-------------
113,783
-------------
FINANCE -- 10.8%
BANKS -- 3.3%
Banc One Corp. 8.00% 2027............... 43,000 48,650
Bank One Columbus 7.38% 2002............ 40,000 41,780
Banponce Financial Corp. 6.75% 2001..... 50,000 50,574
Credit National 7.00% 2005.............. 40,000 40,022
Export Import Bank of Korea 6.50%
2006................................... 65,000 56,194
First Chicago NBD Corp. 7.25% 2004...... 135,000 141,277
First Republic Bancorp 7.75% 2012....... 50,000 51,230
First Union-Lehman Brothers Commercial
Mortgage Corp. 6.60% 2029.............. 130,000 131,806
Korea Development Bank 7.13% 2001....... 35,000 32,912
NBD Bank SA 8.25% 2024.................. 50,000 59,051
NCNB Co. 9.38% 2009..................... 68,000 83,811
</TABLE>
----------------
35
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
BANKS (CONTINUED)
United States Bancorp 7.50% 2026........ $ 110,000 $ 119,449
FINANCIAL SERVICES -- 7.2%
Allstate Financing II 7.83% 2045 ....... 49,000 50,165
Asset Securitization Corp. 6.66% 2041
# ..................................... 80,000 81,625
Associates Corp. of North America 7.63%
2004................................... 130,000 139,233
CS First Boston Mortgage Securities
Corp. 7.24% 2029....................... 110,000 115,638
Dime Capital Trust I, Series A 9.33%
2027................................... 40,000 45,112
Finova Capital Corp. 6.63% 2001......... 125,000 126,536
Finova Capital Corp., Series C 6.39%
2002................................... 60,000 60,292
Fleet Mortgage Group, Inc. 6.84% 2003... 50,000 50,845
Ford Motor Credit Company 7.02% 2000.... 125,000 127,732
GE Capital Mortgage Services, Inc. 6.25%
2023 .................................. 32,050 31,870
Lubermens Mutual Casualty Co. 8.30%
2037*.................................. 80,000 85,081
Morgan Stanley Capital I, Inc. 7.22%
2007*.................................. 120,000 126,675
Popular North America, Inc. 6.63%
2002................................... 50,000 50,718
Private Export Funding Corp. 6.31%
2004................................... 100,000 102,278
Private Export Funding Corp. 6.62%
2005................................... 160,000 166,155
Private Export Funding Corp. 7.03%
2003................................... 60,000 63,180
Private Export Funding Corp. 7.30%
2002................................... 270,000 283,330
Private Export Funding Corp. 7.90%
2000................................... 75,000 78,011
U.S. West Capital Funding, Inc. 6.95%
2037................................... 80,000 83,401
INSURANCE -- 0.3%
Cigna Corp. 7.88% 2027.................. 37,000 40,253
Jackson National Life Insurance Co.
8.15% 2027*............................ 44,000 48,339
-------------
2,813,225
-------------
HEALTHCARE -- 0.9%
HEALTH SERVICES -- 0.6%
Allegiance Corp. 7.00% 2026............. 105,000 108,484
Tenet Healthcare Corp. 7.88% 2003....... 50,000 50,750
MEDICAL PRODUCTS -- 0.3%
Beckman Instruments, Inc. 7.10% 2003*... 75,000 75,148
-------------
234,382
-------------
INDUSTRIAL & COMMERCIAL -- 0.9%
MACHINERY -- 0.3%
Cincinnati Milacron, Inc. 7.88% 2000.... 75,000 76,745
TRANSPORTATION -- 0.6%
AMR Corp. 9.88% 2020.................... 70,000 91,395
Continental Airlines 6.65% 2019......... 70,000 69,608
-------------
237,748
-------------
INFORMATION & ENTERTAINMENT -- 1.4%
BROADCASTING & MEDIA -- 1.4%
Comcast Cable Communications 8.50%
2027................................... 50,000 58,394
News America Holdings, Inc. 8.00%
2016................................... 125,000 134,700
Scholastic Corp. 7.00% 2003............. 80,000 82,004
</TABLE>
- ----------------
36
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
INFORMATION & ENTERTAINMENT (CONTINUED)
BROADCASTING & MEDIA (CONTINUED)
Viacom, Inc. 7.75% 2005................. $ 80,000 $ 83,900
-------------
358,998
-------------
INFORMATION TECHNOLOGY -- 0.4%
TELECOMMUNICATIONS -- 0.4%
Tele-Communications, Inc. 7.25% 2005.... 50,000 51,171
Tele-Communications, Inc. 9.25% 2002.... 50,000 54,722
-------------
105,893
-------------
MATERIALS -- 0.3%
CHEMICALS -- 0.3%
ICI Wilmington, Inc. 6.95% 2004......... 70,000 72,031
-------------
MUNICIPAL BONDS -- 1.5%
MUNICIPAL BONDS -- 1.5%
Hudson County New Jersey Improvement
Authority Facility 6.55% 2002.......... 135,000 137,311
Huntsville Alabama Solid Waste Disposal
Authority 5.95% 2003................... 100,000 98,303
Miami Florida Revenue 7.25% 2003........ 135,000 141,540
-------------
377,154
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 2.5%
FOREIGN GOVERNMENT -- 2.5%
Australian Government 6.75% 2006 .......
(AUD) 625,000 442,699
Republic of Argentina 11.00% 2006....... 55,000 61,188
Republic of Columbia 7.25% 2004......... 73,000 69,727
Republic of Columbia 7.63% 2007......... 25,000 23,563
Republic of Lithuania 7.13% 2002*....... 43,000 42,140
-------------
639,317
-------------
REAL ESTATE -- 1.0%
REAL ESTATE COMPANIES -- 0.5%
Post Apartment Homes LP 7.02% 2001...... 130,000 132,263
REAL ESTATE INVESTMENT TRUSTS -- 0.5%
Equity Office Properties Operating LP
6.38% 2003*............................ 120,000 118,798
-------------
251,061
-------------
U.S. GOVERNMENT & AGENCIES -- 39.4%
U.S. GOVERNMENT & AGENCIES -- 39.4%
Federal Home Loan Mortgage Corp. 6.00%
2006................................... 45,000 44,704
Federal Home Loan Mortgage Corp. 6.50%
2022................................... 100,000 100,500
Federal Home Loan Mortgage Corp. 6.50%
2023................................... 30,000 29,888
Federal Home Loan Mortgage Corp. 6.75%
2022................................... 45,000 45,532
Federal Home Loan Mortgage Corp. 7.00%
2023................................... 32,000 33,190
Federal Home Loan Mortgage Corp. 7.50%
2023................................... 21,063 21,602
Federal Home Loan Mortgage Corp. 7.75%
2022................................... 55,637 58,141
Federal Home Loan Mortgage Corp. 8.50%
2019................................... 63,483 66,991
</TABLE>
----------------
37
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES (CONTINUED)
Federal National Mortgage Association
5.65% 2005............................. $ 45,000 $ 44,742
Federal National Mortgage Association
5.75% 2008............................. 185,000 181,345
Federal National Mortgage Association
7.00% 2006............................. 20,501 20,559
Federal National Mortgage Association
7.39% 2021............................. 55,897 57,787
Federal National Mortgage Association
9.35% 2020............................. 8,776 8,813
Government National Mortgage Association
7.00% 2022............................. 20,373 20,634
Government National Mortgage Association
7.00% 2023............................. 18,794 19,029
Government National Mortgage Association
7.25% 2027............................. 361,379 367,815
Government National Mortgage Association
7.50% 2022............................. 49,649 51,030
Government National Mortgage Association
7.50% 2024............................. 20,376 20,910
Government National Mortgage Association
8.50% 2017............................. 85,650 91,671
Government National Mortgage Association
9.00% 2021............................. 22,809 24,676
United States Treasury Bonds 6.38%
2027................................... 50,000 52,813
United States Treasury Bonds 6.63%
2027................................... 140,000 151,900
United States Treasury Bonds 7.13%
2023................................... 330,000 376,612
United States Treasury Bonds 7.50%
2016................................... 110,000 128,270
United States Treasury Bonds 8.13%
2021................................... 230,000 289,692
United States Treasury Bonds 8.50%
2020................................... 275,000 357,286
United States Treasury Bonds 9.25%
2016................................... 160,000 216,774
United States Treasury Bonds 10.75%
2003................................... 150,000 181,968
United States Treasury Bonds 11.88%
2003................................... 810,000 1,045,912
United States Treasury Bonds 12.00%
2013................................... 1,400,000 2,056,474
United States Treasury Notes 5.38%
2001................................... 200,000 198,812
United States Treasury Notes 5.50%
2008................................... 600,000 592,686
United States Treasury Notes 5.75%
2002................................... 250,000 250,703
United States Treasury Notes 5.88%
2000................................... 375,000 376,759
United States Treasury Notes 6.00%
2000................................... 100,000 100,844
United States Treasury Notes 6.13%
2007................................... 150,000 154,266
United States Treasury Notes 6.25%
2002................................... 250,000 255,312
United States Treasury Notes 6.25%
2007................................... 300,000 310,359
United States Treasury Notes 6.63%
2001................................... 1,090,000 1,121,512
United States Treasury Notes 6.63%
2002................................... 100,000 103,328
United States Treasury Notes 6.63%
2007................................... 50,000 53,078
United States Treasury Notes 7.25%
2004................................... 335,000 361,539
United States Treasury Notes 8.50%
2000................................... 165,000 176,370
-------------
10,222,828
-------------
UTILITIES -- 1.5%
ELECTRIC UTILITIES -- 1.0%
Atlantic City Electric Co. 6.38% 2005... 60,000 60,752
Cleveland Electric Illuminating Co.
7.19% 2000*............................ 30,000 30,452
Empresa Nacional de Electricidad SA
7.33% 2037............................. 50,000 49,841
Public Service Electric & Gas Co. 8.88%
2003................................... 35,000 39,153
UtiliCorp United, Inc. 6.88% 2004....... 80,000 82,462
GAS & PIPELINE UTILITIES -- 0.3%
KN Energy, Inc. 6.65% 2005.............. 80,000 80,166
</TABLE>
- ----------------
38
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
TELEPHONE -- 0.2%
WorldCom, Inc. 7.55% 2004............... $ 50,000 $ 52,661
-------------
395,487
-------------
TOTAL BONDS & NOTES (cost
$15,733,777)........................... 16,005,420
-------------
TOTAL INVESTMENT SECURITIES (cost
$22,149,115)........................... 23,759,918
-------------
<CAPTION>
SHORT-TERM SECURITIES -- 0.8%
<S> <C> <C>
- -----------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 0.2%
Chase Manhattan Corp. 8.77% due
2/19/99 ............................... 60,000 61,384
-------------
FOREIGN SHORT-TERM NOTES -- 0.6%
New Zealand Treasury Bill zero coupon
due 12/16/98 .................... (NZD) 320,000 166,548
-------------
TOTAL SHORT-TERM SECURITIES (cost
$231,134).............................. 227,932
-------------
<CAPTION>
REPURCHASE AGREEMENTS -- 7.2%
<S> <C> <C>
- -----------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 7.2%
PaineWebber, Inc. Joint Repurchase
Agreement (Note 3)..................... 1,011,000 1,011,000
Swiss Bank Corp. Joint Repurchase
Agreement (Note 3) .................... 860,000 860,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost
$1,871,000)............................ 1,871,000
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(cost $24,251,249) 99.6% 25,858,850
Other assets less liabilities -- 0.4 97,892
------ -----------
NET ASSETS -- 100.0% $25,956,742
------ -----------
------ -----------
</TABLE>
- ------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
# Fair valued security; see Note 2
ADR -- American Depository Receipt
AUD -- Australian Dollar
NZD -- New Zealand Dollar
----------------
39
<PAGE>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
AUD 666,000 USD 444,135 04/28/98 $ 3,446
*DEM 231,000 USD 128,755 04/28/98 3,645
FIM 100,000 USD 18,239 07/31/98 304
FIM 85,000 USD 15,431 07/31/98 186
FIM 290,000 USD 52,536 07/31/98 525
FIM 115,000 USD 21,134 08/07/98 501
ITL 15,000,000 USD 8,459 05/06/98 230
ITL 5,000,000 USD 2,793 05/06/98 50
ITL 4,000,000 USD 2,224 05/06/98 30
ITL 37,000,000 USD 20,706 05/06/98 408
ITL 38,000,000 USD 21,121 08/07/98 232
ITL 36,000,000 USD 20,234 08/07/98 444
ITL 14,400,000 USD 8,028 08/07/98 113
NLG 38,000 USD 18,518 07/02/98 191
NLG 12,000 USD 5,927 07/31/98 130
NLG 50,000 USD 24,733 08/07/98 569
*SEK 22,000 USD 2,775 08/07/98 13
*USD 1,990 SEK 16,000 08/07/98 18
*USD 1,246 SEK 10,000 08/07/98 10
-------
11,045
-------
<CAPTION>
GROSS
UNREALIZED
DEPRECIATION
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
GBP 3,000 USD 4,893 05/06/98 (120)
GBP 3,500 USD 5,735 05/06/98 (112)
GBP 2,000 USD 3,285 05/06/98 (56)
GBP 4,000 USD 6,493 08/07/98 (162)
GBP 9,500 USD 15,552 08/07/98 (253)
*SEK 4,000 USD 500 08/07/98 (2)
USD 2,778 ITL 5,000,000 05/06/98 (35)
USD 2,445 NLG 5,000 08/07/98 (29)
USD 12,230 NLG 25,000 08/07/98 (148)
USD 4,896 NLG 10,000 08/07/98 (63)
*USD 128,675 DEM 231,000 04/28/98 (3,565)
-------
(4,545)
-------
Net Unrealized Appreciation................... $ 6,500
-------
-------
</TABLE>
- -------------
* Represents fully offsetting forward foreign currency contracts that do not
have additional market risk but have continued counterparty settlement risk
<TABLE>
<S> <C> <C>
AUD -- Australian Dollar GBP -- Great British Pound SEK -- Swedish Krona
DEM -- Deutsche Mark ITL -- Italian Lira USD -- United States Dollar
FIM -- Finnish Markka NLG -- Netherlands Guilder
</TABLE>
See Notes to Financial Statements
- ----------------
40
<PAGE>
- ----------------
SEASONS SERIES TRUST
MULTI-MANAGED INCOME
PORTFOLIO INVESTMENT PORTFOLIO -- MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK -- 16.0% SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 1.0%
APPAREL & TEXTILES -- 0.2%
R.P.M., Inc. ......................................... 912 $ 16,245
Sola International, Inc.+ ............................ 600 24,863
AUTOMOTIVE -- 0.3%
Federal-Mogul Corp. .................................. 325 17,286
Ford Motor Co. ....................................... 500 32,406
RETAIL -- 0.5%
Costco Cos., Inc.+ ................................... 285 15,212
CVS Corp. ............................................ 100 7,550
Duane Reade, Inc.+ ................................... 761 19,453
Federated Department Stores, Inc.+ ................... 300 15,543
Office Depot, Inc.+ .................................. 400 12,450
Wal-Mart Stores, Inc. ................................ 300 15,244
-------------
176,252
-------------
CONSUMER STAPLES -- 0.7%
FOOD, BEVERAGE & TOBACCO -- 0.3%
DEKALB Genetics Corp., Class B ....................... 205 13,709
Flowers Industries, Inc. ............................. 500 11,719
Philip Morris Cos., Inc. ............................. 500 20,844
UST, Inc. ............................................ 200 6,450
HOUSEHOLD PRODUCTS -- 0.4%
Colgate-Palmolive Co. ................................ 500 43,312
Gillette Co. ......................................... 200 23,738
Procter & Gamble Co. ................................. 200 16,875
-------------
136,647
-------------
ENERGY -- 0.7%
ENERGY SERVICES -- 0.2%
Baker Hughes, Inc. ................................... 300 12,075
Schlumberger Ltd. .................................... 200 15,150
Smedvig ASA, Class B ................................. 100 2,007
ENERGY SOURCES -- 0.5%
Exxon Corp. .......................................... 200 13,525
Mobil Corp. .......................................... 300 22,987
Noble Affiliates, Inc. ............................... 300 12,488
Ocean Rig ASA+ ....................................... 6,883 7,041
Smith International, Inc.+ ........................... 191 10,517
Texaco, Inc. ......................................... 500 30,125
-------------
125,915
-------------
</TABLE>
----------------
41
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 2.6%
BANKS -- 0.8%
Ambanc Holding Co., Inc. ............................. 35 $ 665
Astoria Financial Corp. .............................. 25 1,545
Banca Commerciale Italiana + ......................... 4,634 23,119
Bank of New York Co., Inc. ........................... 250 15,703
BankAmerica Corp. .................................... 380 31,397
Chase Manhattan Corp. ................................ 100 13,488
Citicorp ............................................. 50 7,100
First Defiance Financial Corp. ....................... 110 1,678
First Union Corp. .................................... 200 11,350
Klamath First Bancorp, Inc. .......................... 85 1,955
Mellon Bank Corp. .................................... 200 12,700
North Central Bancshares, Inc. ....................... 15 334
Provident Financial Holdings, Inc. +.................. 60 1,410
Queens County Bancorp, Inc. .......................... 47 2,068
Star Banc Corp. ...................................... 145 8,573
TF Financial Corp. ................................... 10 280
U.S. Bancorp ......................................... 125 15,594
FINANCIAL SERVICES -- 1.2%
American Express Co. ................................. 500 45,906
Associates First Capital Corp., Class A .............. 340 26,860
Beneficial Corp. ..................................... 60 7,459
Capital One Financial Corp. .......................... 500 39,438
Charles Schwab Corp. ................................. 242 9,196
CIT Group, Inc., Class A+ ............................ 800 26,100
ContiFinancial Corp.+ ................................ 500 15,250
Federal National Mortgage Association ................ 300 18,975
FirstSpartan Financial Corp. ......................... 10 451
Household International, Inc. ........................ 110 15,153
SLM Holding .......................................... 330 14,396
INSURANCE -- 0.6%
Aetna, Inc. .......................................... 100 8,344
Allstate Corp. ....................................... 100 9,194
Chubb Corp. .......................................... 100 7,837
Conseco, Inc. ........................................ 400 22,650
Swiss Life Insurance & Pension Co. ................... 8 6,764
The Hartford Financial Services Group, Inc. .......... 100 10,850
UICI+ ................................................ 225 7,776
UNUM Corp. ........................................... 665 36,700
-------------
478,258
-------------
HEALTHCARE -- 1.8%
DRUGS -- 1.1%
Alza Corp.+ .......................................... 365 16,357
Eli Lilly & Co. ...................................... 740 44,122
Merck & Co., Inc. .................................... 100 12,838
Pfizer, Inc. ......................................... 360 35,887
Smithkline Beecham PLC ............................... 1,403 17,673
Warner-Lambert Co. ................................... 405 68,977
</TABLE>
- ----------------
42
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
HEALTH SERVICES -- 0.5%
Columbia/HCA Healthcare Corp. ........................ 1,000 $ 32,250
Omnicare, Inc. ....................................... 652 25,835
Tenet Healthcare Corp.+ .............................. 700 25,419
United Healthcare Corp. .............................. 100 6,475
MEDICAL PRODUCTS -- 0.2%
Cardinal Health, Inc. ................................ 90 7,937
Johnson & Johnson .................................... 200 14,663
Sofamor Danek Group, Inc.+ ........................... 240 20,460
-------------
328,893
-------------
INDUSTRIAL & COMMERCIAL -- 1.1%
AEROSPACE & MILITARY TECHNOLOGY -- 0.0%
Boeing Co. ........................................... 200 10,425
BUSINESS SERVICES -- 0.7%
Cendant Corp.+ ....................................... 500 19,812
Delta & Pine Land Co. ................................ 430 22,360
GTECH Holdings Corp.+ ................................ 200 7,775
Owens-Illinois, Inc.+ ................................ 200 8,650
Sealed Air Corp.+ .................................... 285 18,668
Service Corp. International .......................... 100 4,244
Sysco Corp. .......................................... 600 15,375
Tomra Systems ASA+ ................................... 77 2,040
USA Waste Services, Inc.+ ............................ 500 22,281
MULTI-INDUSTRY -- 0.4%
Raision Tehtaat Oy ................................... 205 29,430
Republic Industries, Inc.+ ........................... 500 12,906
Siebe PLC ............................................ 653 14,254
Tyco International Ltd. .............................. 335 18,299
-------------
206,519
-------------
INFORMATION & ENTERTAINMENT -- 1.0%
BROADCASTING & MEDIA -- 0.7%
CBS Corp. ............................................ 745 25,283
Chancellor Media Corp.+ .............................. 385 17,662
Lamar Advertising Co., Class A+ ...................... 304 10,640
Outdoor Systems, Inc.+ ............................... 344 12,062
Time Warner, Inc. .................................... 882 63,504
ENTERTAINMENT PRODUCTS -- 0.1%
Hasbro, Inc. ......................................... 200 7,063
Mattel, Inc. ......................................... 300 11,887
LEISURE & TOURISM -- 0.2%
Hilton Hotels Corp. .................................. 400 12,750
McDonald's Corp. ..................................... 300 18,000
-------------
178,851
-------------
</TABLE>
----------------
43
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY -- 5.2%
COMMUNICATION EQUIPMENT -- 0.5%
CIENA Corp.+ ......................................... 175 $ 7,459
Lucent Technologies, Inc. ............................ 200 25,575
Nokia Corp., Class A ADR ............................. 355 38,318
Tellabs, Inc.+ ....................................... 200 13,425
U.S. West Media Group + .............................. 375 13,031
COMPUTERS & BUSINESS EQUIPMENT -- 0.6%
Computer Sciences Corp. .............................. 200 11,000
Dell Computer Corp.+ ................................. 225 15,244
EMC Corp.+ ........................................... 405 15,314
HBO & Co. ............................................ 325 19,622
Hewlett-Packard Co. .................................. 300 19,012
Honeywell, Inc. ...................................... 200 16,537
International Business Machines Corp. ................ 100 10,388
ELECTRONICS -- 1.1%
Analog Devices, Inc.+ ................................ 1,205 40,066
Applied Materials, Inc.+ ............................. 400 14,125
ASM Lithography Holdings NV+ ......................... 200 18,487
General Electric Co. ................................. 400 34,475
Intel Corp. .......................................... 200 15,613
Maxim Integrated Products, Inc.+ ..................... 255 9,292
Molex, Inc., Class A ................................. 500 13,406
Motorola, Inc. ....................................... 300 18,188
Pittway Corp., Class A ............................... 450 32,400
Vitesse Semiconductor Corp.+ ......................... 155 7,309
SOFTWARE -- 2.4%
America Online, Inc.+ ................................ 754 51,508
Aspen Technology, Inc.+ .............................. 625 25,781
At Home Corp., Series A+ ............................. 425 14,370
Cadence Design Systems, Inc.+ ........................ 570 19,736
Cisco Systems, Inc.+ ................................. 945 64,615
Computer Associates International, Inc. .............. 300 17,325
Intuit, Inc.+ ........................................ 225 10,885
Microsoft Corp.+ ..................................... 930 83,235
Oracle Corp.+ ........................................ 500 15,781
Parametric Technology Corp.+ ......................... 2,150 71,622
PeopleSoft, Inc.+ .................................... 365 19,231
Reynolds & Reynolds Co., Class A ..................... 400 8,750
Sapient Corp.+ ....................................... 200 9,475
VERITAS Software Corp.+ .............................. 145 8,573
Wind River Systems+ .................................. 219 8,705
TELECOMMUNICATIONS -- 0.6%
Comcast Corp., Class A+ .............................. 1,230 43,434
SBC Communications, Inc. ............................. 400 17,450
Tele-Communications, Inc., Series A+ ................. 1,503 46,734
Teleport Communications Group Inc., Class A+ ......... 100 5,875
-------------
951,371
-------------
</TABLE>
- ----------------
44
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS -- 0.7%
CHEMICALS -- 0.6%
Cabot Corp. .......................................... 115 $ 4,240
du Pont (E.I.) de Nemours & Co. ...................... 300 20,400
Monsanto Co. ......................................... 1,265 65,780
Solutia, Inc. ........................................ 385 11,454
FOREST PRODUCTS -- 0.1%
American Pad & Paper Co.+ ............................ 200 1,450
Boise Cascade Corp. .................................. 400 14,425
Sonoco Products Co. .................................. 200 8,012
METALS & MINERALS -- 0.0%
Martin Marietta Materials, Inc. ...................... 200 8,638
-------------
134,399
-------------
REAL ESTATE -- 0.0%
REAL ESTATE INVESTMENT TRUSTS -- 0.0%
Crescent Real Estate Equities Co. .................... 300 10,800
-------------
UTILITIES -- 1.2%
ELECTRIC UTILITIES -- 0.3%
Duke Energy Corp. .................................... 413 24,599
GPU, Inc. ............................................ 600 26,550
GAS & PIPELINE UTILITIES -- 0.3%
Consolidated Natural Gas Co. ......................... 600 34,612
Enron Corp. .......................................... 300 13,913
US Filter Corp.+ ..................................... 200 7,025
TELEPHONE -- 0.6%
Ameritech Corp. ...................................... 700 34,606
AT&T Corp. ........................................... 200 13,125
GTE Corp. ............................................ 300 17,963
MCI Communications Corp. ............................. 300 14,850
Telecom Italia SpA ................................... 2,014 15,870
WorldCom, Inc.+ ...................................... 364 15,675
-------------
218,788
-------------
TOTAL COMMON STOCK (cost $2,414,759).................. 2,946,693
-------------
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 77.2% AMOUNT
<S> <C> <C>
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 0.7%
RETAIL -- 0.7%
J.C. Penney Co., Inc. 7.40% 2037...................... $ 60,000 64,736
Fred Meyer Inc. 7.38% 2005............................ 55,000 55,156
-------------
119,892
-------------
CONSUMER STAPLES -- 0.5%
FOOD, BEVERAGE & TOBACCO -- 0.5%
Panamerican Beverages, Inc. 8.13% 2003................ 80,000 85,041
-------------
</TABLE>
----------------
45
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY -- 0.8%
ENERGY SOURCES -- 0.8%
Newfield Exploration Co., Series B 7.45% 2007*........ $ 30,000 $ 29,870
Petroleos Mexicano 9.00% 2007......................... 56,000 57,330
YPF Sociedad Anonima 8.00% 2004....................... 60,000 60,952
-------------
148,152
-------------
FINANCE -- 15.5%
BANKS -- 5.1%
Banc One Corp. 8.00% 2027............................. 55,000 62,227
Bank One Columbus 7.38% 2002.......................... 40,000 41,780
Banponce Financial Corp. 6.75% 2001................... 65,000 65,747
Credit National 7.00% 2005............................ 60,000 60,033
Export Import Bank of Korea 6.50% 2006................ 80,000 69,162
First Chicago NBD Corp. 7.25% 2004.................... 135,000 141,277
First Republic Bancorp 7.75% 2012..................... 55,000 56,353
First Union-Lehman Brothers Commercial Mortgage Corp
6.60% 2029........................................... 125,000 126,736
Korea Development Bank 7.13% 2001..................... 30,000 28,210
NBD Bank SA 8.25% 2024................................ 55,000 64,956
NCNB Co. 9.38% 2009................................... 80,000 98,602
United States Bancorp 7.50% 2026...................... 110,000 119,449
FINANCIAL SERVICES -- 9.9%
Allstate Financing II 7.83% 2045 ..................... 53,000 54,260
Asset Securitization Corp. 6.66% 2041# ............... 85,000 86,727
Associates Corp. of North America 7.63% 2004.......... 130,000 139,233
CS First Boston Mortgage Securities Corp. 7.24%
2029................................................. 110,000 115,638
Dime Capital Trust I, Series A 9.33% 2027............. 45,000 50,751
Finova Capital Corp. 6.63% 2001....................... 125,000 126,536
Finova Capital Corp., Series C 6.39% 2002............. 65,000 65,316
Fleet Mortgage Group, Inc. 6.84% 2003................. 50,000 50,845
Ford Motor Credit Company 7.02% 2000.................. 125,000 127,733
GE Capital Mortgage Services, Inc. 6.25% 2023 ........ 48,076 47,805
Lubermens Mutual Casualty Co. 8.30% 2037*............. 85,000 90,398
Morgan Stanley Capital I, Inc. 7.22% 2007*............ 130,000 137,231
Popular North America, Inc. 6.63% 2002................ 40,000 40,574
Private Export Funding Corp. 6.31% 2004............... 100,000 102,278
Private Export Funding Corp. 7.03% 2003............... 100,000 105,300
Private Export Funding Corp. 7.30% 2002............... 265,000 278,083
Private Export Funding Corp. 7.90% 2000............... 100,000 104,015
U.S. West Capital Funding, Inc. 6.95% 2037............ 90,000 93,827
INSURANCE -- 0.5%
Cigna Corp. 7.88% 2027................................ 40,000 43,517
Jackson National Life Insurance Co. 8.15% 2027*....... 49,000 53,832
-------------
2,848,431
-------------
HEALTHCARE -- 1.4%
HEALTH SERVICES -- 1.0%
Allegiance Corp. 7.00% 2026........................... 120,000 123,981
Tenet Healthcare Corp. 7.88% 2003..................... 50,000 50,750
</TABLE>
- ----------------
46
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
MEDICAL PRODUCTS -- 0.4%
Beckman Instruments, Inc. 7.10% 2003*................. $ 75,000 $ 75,148
-------------
249,879
-------------
INDUSTRIAL & COMMERCIAL -- 1.2%
MACHINERY -- 0.4%
Cincinnati Milacron, Inc. 7.88% 2000.................. 75,000 76,744
TRANSPORTATION -- 0.8%
AMR Corp. 10.20% 2020................................. 50,000 66,460
Continental Airlines 6.65% 2019....................... 75,000 74,581
-------------
217,785
-------------
INFORMATION & ENTERTAINMENT -- 2.2%
BROADCASTING & MEDIA -- 2.2%
Comcast Cable Communications 8.50% 2027............... 80,000 93,431
News America Holdings, Inc. 8.00% 2016................ 130,000 140,088
Scholastic Corp. 7.00% 2003........................... 85,000 87,129
Viacom, Inc. 7.75% 2005............................... 80,000 83,900
-------------
404,548
-------------
INFORMATION TECHNOLOGY -- 0.6%
TELECOMMUNICATIONS -- 0.6%
Tele-Communications, Inc. 7.25% 2005.................. 40,000 40,936
Tele-Communications, Inc. 9.25% 2002.................. 60,000 65,667
-------------
106,603
-------------
MATERIALS -- 0.4%
CHEMICALS -- 0.4%
ICI Wilmington, Inc. 6.95% 2004....................... 80,000 82,322
-------------
MUNICIPAL BONDS -- 2.4%
MUNICIPAL BONDS -- 2.4%
Hudson County New Jersey Improvement Authority
Facility 6.55% 2002.................................. 200,000 203,424
Huntsville Alabama Solid Waste Disposal Authority
5.95% 2003........................................... 105,000 103,218
Miami Florida Revenue 7.25% 2003...................... 130,000 136,297
-------------
442,939
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 3.7%
FOREIGN GOVERNMENT -- 3.7%
Australian Government 6.75% 2006 ............... (AUD) 665,000 471,032
Republic of Argentina 11.00% 2006..................... 60,000 66,750
Republic of Columbia 7.25% 2004....................... 70,000 66,937
Republic of Columbia 7.63% 2007....................... 25,000 23,563
Republic of Lithuania 7.13% 2002*..................... 53,000 51,940
-------------
680,222
-------------
REAL ESTATE -- 1.4%
REAL ESTATE COMPANIES -- 0.7%
Post Apartment Homes LP 7.02% 2001.................... 130,000 132,263
</TABLE>
----------------
47
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS -- 0.7%
Equity Office Properties Operating LP 6.38% 2003*..... $ 120,000 $ 118,798
-------------
251,061
-------------
U.S. GOVERNMENT & AGENCIES -- 43.8%
U.S. GOVERNMENT & AGENCIES -- 43.8%
Federal Home Loan Mortgage Corp. 6.50% 2022........... 60,000 60,300
Federal Home Loan Mortgage Corp. 6.50% 2023........... 40,000 39,850
Federal Home Loan Mortgage Corp. 7.00% 2023........... 45,000 46,673
Federal Home Loan Mortgage Corp. 7.50% 2023........... 35,104 36,004
Federal Home Loan Mortgage Corp. 7.75% 2022........... 79,482 83,058
Federal Home Loan Mortgage Corp. 8.50% 2019........... 72,552 76,562
Federal National Mortgage Association 5.65% 2005...... 60,000 59,656
Federal National Mortgage Association 5.75% 2008...... 425,000 416,602
Federal National Mortgage Association 7.00% 2006...... 28,702 28,783
Federal National Mortgage Association 7.39% 2021...... 55,897 57,787
Federal National Mortgage Association 9.35% 2020...... 19,078 19,159
Government National Mortgage Association 7.00% 2023... 58,401 59,131
Government National Mortgage Association 7.25% 2027... 549,494 559,280
Government National Mortgage Association 7.50% 2022... 25,002 25,697
Government National Mortgage Association 7.50% 2023... 84,696 87,024
Government National Mortgage Association 8.50% 2017... 89,316 95,596
Government National Mortgage Association 9.00% 2021... 25,660 27,760
United States Treasury Bonds 6.38% 2027............... 20,000 21,125
United States Treasury Bonds 6.63% 2027............... 110,000 119,350
United States Treasury Bonds 7.13% 2023............... 365,000 416,556
United States Treasury Bonds 7.50% 2016............... 150,000 174,913
United States Treasury Bonds 8.13% 2021............... 220,000 277,097
United States Treasury Bonds 8.50% 2020............... 180,000 233,860
United States Treasury Bonds 9.25% 2016............... 115,000 155,807
United States Treasury Bonds 10.75% 2003.............. 170,000 206,230
United States Treasury Bonds 11.88% 2003.............. 740,000 955,525
United States Treasury Bonds 12.00% 2013.............. 1,220,000 1,792,070
United States Treasury Notes 5.63% 1999............... 160,000 160,026
United States Treasury Notes 5.88% 2000............... 185,000 185,868
United States Treasury Notes 6.13% 2007............... 50,000 51,422
United States Treasury Notes 6.25% 2002............... 40,000 40,850
United States Treasury Notes 6.25% 2007............... 150,000 155,179
United States Treasury Notes 6.63% 2001............... 835,000 859,140
United States Treasury Notes 6.63% 2002............... 65,000 67,163
United States Treasury Notes 6.63% 2007............... 25,000 26,539
United States Treasury Notes 7.25% 2004............... 155,000 167,279
United States Treasury Notes 8.50% 2000............... 195,000 208,437
-------------
8,053,358
-------------
UTILITIES -- 2.6%
ELECTRIC UTILITIES -- 1.7%
Atlantic City Electric Co. 6.38% 2005................. 75,000 75,940
Cleveland Electric Illuminating Co., Series B 7.19%
2000*................................................ 40,000 40,603
Empresa Nacional de Electricidad SA 7.33% 2037........ 60,000 59,809
</TABLE>
- ----------------
48
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
Public Service Electric & Gas Co. 8.88% 2003.......... $ 47,000 $ 52,577
UtiliCorp United, Inc. 6.88% 2004..................... 90,000 92,770
GAS & PIPELINE UTILITIES -- 0.4%
KN Energy, Inc. 6.65% 2005............................ 80,000 80,165
TELEPHONE -- 0.5%
WorldCom, Inc. 7.55% 2004............................. 80,000 84,259
-------------
486,123
-------------
TOTAL BONDS & NOTES (cost $13,893,743)................ 14,176,356
-------------
TOTAL INVESTMENT SECURITIES (cost $16,308,502)........ 17,123,049
-------------
<CAPTION>
SHORT-TERM SECURITIES -- 1.2%
<S> <C> <C>
- -------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 0.3%
Chase Manhattan Corp. 8.77% due 2/19/99............... 60,000 61,384
-------------
FOREIGN SHORT-TERM NOTES -- 0.9%
New Zealand Treasury Bill coupon due 12/16/98 ........
(NZD) 300,000 156,139
-------------
TOTAL SHORT-TERM SECURITIES (cost $220,520)........... 217,523
-------------
<CAPTION>
REPURCHASE AGREEMENTS -- 5.4%
<S> <C> <C>
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 5.4%
PaineWebber, Inc. Joint Repurchase Agreement (Note
3) .................................................. 256,000 256,000
Swiss Bank Corp. Joint Repurchase Agreement (Note
3) .................................................. 745,000 745,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $1,001,000)......... 1,001,000
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(cost $17,530,022) 99.8% 18,341,572
Other assets less liabilities -- 0.2 36,211
------- -------------
NET ASSETS -- 100.0% $ 18,377,783
------- -------------
------- -------------
</TABLE>
- ------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
# Fair valued security; See Note 2
ADR -- American Depository Receipt
AUD -- Australian Dollar
NZD -- New Zealand Dollar
----------------
49
<PAGE>
<TABLE>
<CAPTION>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
- ---------------------------------------------------------------------------
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUD 709,000 USD 472,811 04/28/98 $ 3,669
*DEM 253,000 USD 141,018 04/28/98 3,992
FIM 40,000 USD 7,296 07/31/98 122
FIM 20,000 USD 3,631 07/31/98 44
FIM 85,000 USD 15,398 07/31/98 154
FIM 45,000 USD 8,270 08/07/98 196
ITL 4,000,000 USD 2,256 05/06/98 61
ITL 1,500,000 USD 838 05/06/98 15
ITL 1,500,000 USD 834 05/06/98 11
ITL 12,000,000 USD 6,715 05/06/98 132
ITL 11,000,000 USD 6,114 08/07/98 67
ITL 14,500,000 USD 8,150 08/07/98 179
ITL 4,000,000 USD 2,230 08/07/98 31
NLG 12,000 USD 5,848 07/02/98 60
NLG 3,000 USD 1,482 07/31/98 33
NLG 18,000 USD 8,904 08/07/98 205
*SEK 6,000 USD 757 08/07/98 4
*USD 622 SEK 5,000 08/07/98 6
*USD 249 SEK 2,000 08/07/98 2
------
8,983
------
<CAPTION>
GROSS
UNREALIZED
DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GBP 1,200 USD 1,957 05/06/98 (48)
GBP 1,200 USD 1,966 05/06/98 (38)
GBP 500 USD 821 05/06/98 (14)
GBP 1,000 USD 1,623 08/07/98 (40)
GBP 3,100 USD 5,075 08/07/98 (83)
*SEK 1,000 USD 125 08/07/98 (1)
USD 833 ITL 1,500,000 05/06/98 (11)
USD 1,222 NLG 2,500 08/07/98 (14)
USD 3,180 NLG 6,500 08/07/98 (38)
USD 2,448 NLG 5,000 08/07/98 (32)
*USD 140,929 DEM 253,000 04/28/98 (3,904)
------
(4,223)
------
Net Unrealized Appreciation............................. $ 4,760
------
------
</TABLE>
- -------------
* Represents fully offsetting forward foreign currency contracts that do not
have additional market risk but have continued counterparty settlement risk
<TABLE>
<S> <C> <C>
AUD -- Australian Dollar GBP -- Great British Pound SEK -- Swedish Krona
DEM -- Deutsche Mark ITL -- Italian Lira USD -- United States Dollar
FIM -- Finnish Markka NLG -- Netherlands Guilder
</TABLE>
See Notes to Financial Statements
- ----------------
50
<PAGE>
- ----------------
SEASONS SERIES TRUST
ASSET ALLOCATION:
DIVERSIFIED GROWTH
PORTFOLIO INVESTMENT PORTFOLIO -- MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK -- 77.0% SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 7.7%
APPAREL & TEXTILES -- 0.2%
Adidas-Salomon AG .................................... 307 $ 54,435
Jones Apparel Group, Inc.+ ........................... 700 38,544
Onward Kashiyama Co. Ltd. ............................ 3,000 37,155
AUTOMOTIVE -- 2.7%
Bayerische Motoren Werke AG .......................... 138 152,583
Bridgestone Corp. .................................... 2,000 45,337
Chrysler Corp. ....................................... 11,500 477,969
Michelin Corp., Class B .............................. 2,360 140,857
Lear Corp.+ .......................................... 8,800 496,100
Renault SA+ .......................................... 838 37,320
HOUSING -- 0.5%
CRH PLC .............................................. 10,202 153,296
Masco Corp. .......................................... 1,400 83,300
RETAIL -- 4.3%
CompUSA, Inc.+ ....................................... 1,700 44,200
Costco Cos., Inc.+ ................................... 2,600 138,775
CVS Corp. ............................................ 2,700 203,850
Dayton Hudson Corp. .................................. 1,300 114,400
Fred Meyer, Inc.+ .................................... 900 41,569
Home Depot, Inc. ..................................... 900 60,694
Ito-Yokado Co. Ltd. .................................. 1,000 54,194
Kmart Corp.+ ......................................... 35,700 595,744
Office Max, Inc.+ .................................... 22,100 395,037
Safeway, Inc.+ ....................................... 1,800 66,487
TJX Cos., Inc. ....................................... 2,000 90,500
Vendex International NV .............................. 1,435 90,851
Wal-Mart Stores, Inc. ................................ 3,600 182,925
Walgreen Co. ......................................... 2,500 87,969
-------------
3,884,091
-------------
CONSUMER STAPLES -- 5.0%
FOOD, BEVERAGE & TOBACCO -- 3.0%
B.A.T. Industries PLC ................................ 13,806 140,632
Coca-Cola Enterprises, Inc. .......................... 2,600 95,388
Goodman Fielder Ltd. ................................. 6,571 10,195
Nestle SA ............................................ 142 271,332
Quaker Oats Co. ...................................... 8,700 498,075
RJR Nabisco Holdings Corp. ........................... 13,700 428,981
Sara Lee Corp. ....................................... 1,100 67,788
</TABLE>
----------------
51
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (CONTINUED)
HOUSEHOLD PRODUCTS -- 2.0%
Clorox Co. ........................................... 1,200 $ 102,825
Colgate-Palmolive Co. ................................ 1,000 86,625
Estee Lauder Cos., Inc., Class A ..................... 700 47,513
KAO Corp. ............................................ 6,000 78,814
Kimberly-Clark Corp. ................................. 8,700 436,087
Procter & Gamble Co. ................................. 1,900 160,312
Shiseido Co. Ltd. .................................... 3,000 34,453
Unilever PLC ......................................... 6,297 59,558
-------------
2,518,578
-------------
ENERGY -- 5.5%
ENERGY SERVICES -- 1.7%
Halliburton Co. ...................................... 14,600 732,737
Mobil Corp. .......................................... 600 45,975
VA Technologie AG .................................... 137 21,583
Western Atlas, Inc.+ ................................. 500 38,688
ENERGY SOURCES -- 3.8%
Amoco Corp. .......................................... 7,100 613,262
Atlantic Richfield Co. ............................... 7,700 605,412
British Petroleum Co. PLC ............................ 7,992 114,989
Burmah Castrol PLC ................................... 6,516 132,857
Elf Aquitaine SA ..................................... 977 128,007
ENI SpA .............................................. 7,570 51,574
Exxon Corp. .......................................... 1,500 101,438
Iberdrola SA ......................................... 3,022 45,931
Total SA, Class B .................................... 1,281 153,782
-------------
2,786,235
-------------
FINANCE -- 17.1%
BANKS -- 6.7%
ABN Amro Holdings NV ................................. 3,900 89,973
Allied Irish Banks ................................... 11,374 139,538
Asahi Bank Ltd. ...................................... 1,000 4,091
Banco Comercial Portugues SA+ ........................ 877 28,322
Banco Frances del Rio de la Plata+ ................... 2,022 20,223
Bank of Ireland ...................................... 7,795 154,095
Bank of Nova Scotia .................................. 4,991 135,444
BankAmerica Corp. .................................... 2,400 198,300
Bankers Trust New York Corp. ......................... 4,000 481,250
Banque Nationale de Paris+ ........................... 2,126 165,175
Charter One Financial, Inc. .......................... 200 13,388
Comerica, Inc. ....................................... 900 95,231
Commonwealth Bank of Australia ....................... 3,842 45,642
Credit Commerce France ............................... 610 50,099
Dao Heng Bank Group Ltd. ............................. 7,000 20,687
Deutsche Bank AG+ .................................... 1,543 116,087
Development Bank of Singapore Ltd. ................... 6,600 48,230
Fifth Third Bancorp .................................. 600 51,300
First Chicago NBD Corp. .............................. 1,400 123,375
</TABLE>
- ----------------
52
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
BANKS (CONTINUED)
Foreningsbanken AB+ .................................. 887 $ 29,232
Julius Baer Holdings AG .............................. 25 60,676
MBNA Corp. ........................................... 3,800 136,087
Nordbanken Holding+ .................................. 4,234 28,066
Overseas Chinese Banking Corp. Ltd. .................. 8,000 45,084
Overseas Union Bank Ltd. ............................. 13,000 50,720
Royal Bank of Canada ................................. 1,068 63,431
Schweizerische BankGesellschaft ...................... 110 179,665
Skandinaviska Enskilda Banken, Series A .............. 2,279 33,207
Societe Generale ..................................... 706 141,257
Southtrust Corp. ..................................... 550 23,031
Summit Bancorp. ...................................... 9,400 470,587
SunTrust Banks, Inc. ................................. 100 7,538
Svenska Handelsbank, Series A ........................ 640 29,617
United Overseas Bank Ltd. ............................ 12,000 66,512
Westpac Banking Corp. Ltd. ........................... 6,588 44,093
FINANCIAL SERVICES -- 8.3%
Acom Co. Ltd. ........................................ 1,000 49,916
American Express Co. ................................. 1,600 146,900
Associates First Capital Corp., Class A .............. 1,200 94,800
Assurance General de France+ ......................... 1,822 102,514
Federal Home Loan Mortgage Corp. ..................... 2,300 109,106
Guoco Group Ltd. ..................................... 4,000 9,808
HSBC Holdings PLC .................................... 5,200 159,044
Internatiionale Nedederlanden Groep NV ............... 2,602 147,637
KeyCorp.+ ............................................ 13,200 499,125
Lehman Brothers Holdings, Inc. ....................... 6,700 501,663
Morgan Stanley, Dean Witter, Discover & Co. .......... 1,200 87,450
Nikko Securities Co. Ltd. ............................ 18,000 58,097
P & O Finance BV ..................................... 3,979 59,148
Transamerica Corp. ................................... 3,900 454,350
Travelers Group, Inc. ................................ 3,000 180,000
Unidanmark A/S ....................................... 245 19,458
Union Planters Corp. ................................. 7,700 478,844
Washington Mutual, Inc. .............................. 7,470 535,739
Wells Fargo & Co. .................................... 1,500 496,875
INSURANCE -- 2.1%
Aetna, Inc. .......................................... 5,700 475,594
Allianz AG ........................................... 150 45,295
American International Group, Inc. ................... 1,000 125,937
Conseco, Inc. ........................................ 1,500 84,937
Munchener Ruckversicherungs........................... 94 40,658
Prudential Corp. PLC ................................. 7,054 103,737
QBE Insurance Group Ltd. ............................. 3,532 15,417
Royal & Sun Alliance Insurance Group PLC ............. 8,207 104,413
Zurich Versicherungs-Gesellschaft .................... 86 49,925
-------------
8,625,640
-------------
</TABLE>
----------------
53
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 5.9%
DRUGS -- 3.5%
Astra AB ............................................. 1,799 $ 37,125
Bristol-Myers Squibb Co. ............................. 1,500 156,469
Eli Lilly & Co. ...................................... 800 47,700
Glaxo Wellcome PLC ................................... 2,869 77,035
Merck & Co., Inc. .................................... 1,000 128,375
Novartis AG .......................................... 76 134,502
Pfizer, Inc. ......................................... 1,600 159,500
Pharmacia & Upjohn, Inc. ............................. 11,600 507,500
Pharmacia & Upjohn, Inc. (SEK)........................ 2,177 93,936
Sankyo Co. Ltd. ...................................... 3,000 83,318
Schering-Plough Corp. ................................ 1,800 147,037
Warner-Lambert Co. ................................... 1,100 187,344
HEALTH SERVICES -- 1.4%
HEALTHSOUTH Corp.+ ................................... 2,800 78,575
Wellpoint Health Networks, Inc. ...................... 9,100 614,250
MEDICAL PRODUCTS -- 1.0%
Cardinal Health, Inc. ................................ 800 70,550
U.S. Surgical Corp. .................................. 13,900 458,700
-------------
2,981,916
-------------
INDUSTRIAL & COMMERCIAL -- 9.0%
AEROSPACE & MILITARY TECHNOLOGY -- 1.0%
Boeing Co. ........................................... 9,200 479,550
Rolls Royce PLC ...................................... 8,258 38,430
BUSINESS SERVICES -- 1.0%
Cendant Corp.+ ....................................... 4,600 182,275
Dai Nippon Printing Co. Ltd. ......................... 4,000 66,054
Franklin Resources, Inc. ............................. 1,200 63,600
Interpublic Group of Cos., Inc. ...................... 1,300 80,762
USA Waste Services, Inc.+ ............................ 1,400 62,387
Yamato Transport Co. Ltd. ............................ 4,000 47,439
ELECTRICAL EQUIPMENT -- 0.3%
Emerson Electric Co. ................................. 500 32,594
Premier Farnell PLC .................................. 1,300 8,313
Siebe PLC ............................................ 3,427 74,808
MACHINERY -- 1.7%
Caterpillar, Inc. .................................... 8,000 440,500
Cooper Cameron Corp.+ ................................ 800 48,300
Illinois Tool Works, Inc. ............................ 100 6,475
Ingersoll-Rand Co. ................................... 1,900 91,081
Mannesmann AG ........................................ 274 200,587
Molins PLC ........................................... 1,520 7,176
Rieter Holdings Ltd. AG .............................. 83 46,876
Sandvik AB, Class B .................................. 1,070 30,445
MULTI-INDUSTRY -- 3.4%
BTR PLC .............................................. 28,898 95,178
Compagnie Generale des Eaux .......................... 964 156,480
</TABLE>
- ----------------
54
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (CONTINUED)
MULTI-INDUSTRY (CONTINUED)
Cookson Group PLC .................................... 8,496 $ 32,854
Ogden Corp. .......................................... 15,100 434,125
Securicor Group PLC .................................. 7,653 52,397
Smiths Industries .................................... 5,224 76,606
Tomkins PLC .......................................... 20,294 124,083
Tyco International Ltd. .............................. 4,300 234,888
Whitman Corp. ........................................ 25,800 509,550
TRANSPORTATION -- 1.6%
AMR Corp.+ ........................................... 500 71,594
Bombardier, Inc., Class B ............................ 2,769 68,499
British Airways PLC .................................. 6,898 70,092
Burlington Northern Santa Fe Corp. ................... 4,800 499,200
Deutsche Lufthansa AG ................................ 2,169 45,677
Quintiles Transnational Corp.+ ....................... 900 43,369
-------------
4,522,244
-------------
INFORMATION & ENTERTAINMENT -- 3.5%
BROADCASTING & MEDIA -- 2.5%
CBS Corp. ............................................ 3,600 122,175
Gannett Co., Inc. .................................... 2,800 201,250
Time Warner, Inc. .................................... 6,700 482,400
Times Mirror Co., Series A ........................... 7,500 475,313
ENTERTAINMENT PRODUCTS -- 0.1%
Fuji Photo Film Co. Ltd. ............................. 1,000 37,230
LEISURE & TOURISM -- 0.9%
Bass PLC, Class B .................................... 500 820
Bass PLC ............................................. 7,300 140,166
Carnival Corp., Class A .............................. 1,400 97,650
Hutchison Whampoa Ltd. ............................... 13,000 91,433
Marriott International, Inc.+ ........................ 1,500 55,781
Marriott International, Inc., Class A+ ............... 1,500 53,719
-------------
1,757,937
-------------
INFORMATION TECHNOLOGY -- 14.5%
COMMUNICATION EQUIPMENT -- 0.7%
Lucent Technologies, Inc. ............................ 1,200 153,450
Newbridge Networks Corp. ADR+ ........................ 1,000 26,644
Nokia Corp., Class A ................................. 943 101,196
Tellabs, Inc.+ ....................................... 1,300 87,262
COMPUTERS & BUSINESS EQUIPMENT -- 5.2%
Canon, Inc. .......................................... 2,000 45,187
Dell Computer Corp.+ ................................. 900 60,975
EMC Corp.+ ........................................... 2,400 90,750
HBO & Co. ............................................ 2,000 120,750
International Business Machines Corp. ................ 4,900 508,987
NCR Corp.+ ........................................... 13,900 459,569
Pitney Bowes, Inc. ................................... 1,600 80,300
</TABLE>
----------------
55
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
COMPUTERS & BUSINESS EQUIPMENT (CONTINUED)
Ricoh Co. Ltd. ....................................... 2,000 $ 20,116
Seagate Technology, Inc.+ ............................ 10,000 252,500
Texas Instruments, Inc. .............................. 8,800 476,300
Xerox Corp. .......................................... 4,600 489,613
ELECTRONICS -- 3.1%
Dixons Group PLC ..................................... 7,277 64,076
General Electric Co. ................................. 3,300 284,419
General Electric Co. PLC+ ............................ 15,083 119,238
Linear Technology Corp. .............................. 800 55,200
Omron Corp. .......................................... 5,000 75,812
Philips Electronics NV ............................... 1,828 134,144
SGS Thomson Microelectronics NV + .................... 1,774 137,596
Sony Corp. ........................................... 1,400 118,746
Tokyo Electron Ltd. .................................. 2,000 67,405
Vishay Intertechnology, Inc. + ....................... 20,055 471,292
SOFTWARE -- 1.5%
America Online, Inc.+ ................................ 700 47,819
BMC Software, Inc.+ .................................. 1,400 117,337
Computer Associates International, Inc. .............. 2,700 155,925
Compuware Corp.+ ..................................... 1,500 74,062
Microsoft Corp.+ ..................................... 2,400 214,800
Parametric Technology Corp.+ ......................... 2,100 69,956
PeopleSoft, Inc.+ .................................... 1,400 73,763
TELECOMMUNICATIONS -- 4.0%
3Com Corp.+ .......................................... 13,200 474,375
AirTouch Communications, Inc.+ ....................... 1,300 63,619
China Telecom+ ....................................... 18,000 36,470
Deutsche Telekom AG .................................. 2,305 50,037
Ericsson (LM) Telecommunications Co., Series B ....... 1,814 86,214
Northern Telecom Ltd. ................................ 1,990 128,865
SBC Communications, Inc. ............................. 1,800 78,525
Tele-Communications TCI Ventures Group, Series A+ .... 4,100 72,006
Tele-Communications, Inc., Series A+ ................. 2,700 83,953
Telecom Italia SpA ................................... 13,100 103,226
Telecomunicacoes de Brasileiras SA ADR+ .............. 400 51,925
Telefonica de Espana SA .............................. 2,366 104,338
U.S. West Communications Group ....................... 8,700 476,325
Vodafone Group PLC ................................... 21,085 219,013
-------------
7,284,080
-------------
MATERIALS -- 4.0%
CHEMICALS -- 0.5%
Akzo Nobel NV ........................................ 738 149,905
Bayer AG ............................................. 2,708 123,866
FOREST PRODUCTS -- 2.5%
Boise Cascade Corp. .................................. 13,300 479,631
Svenska Cellulosa AB, Class B ........................ 3,133 86,206
Unisource Worldwide, Inc. ............................ 15,300 189,338
</TABLE>
- ----------------
56
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (CONTINUED)
FOREST PRODUCTS (CONTINUED)
Weyerhaeuser Co. ..................................... 8,800 $ 497,200
METALS & MINERALS -- 1.0%
Aluminum Co. of America .............................. 3,800 261,487
Cimpor-Cimentos de Portugal SA ....................... 648 22,840
Lafarge Corp. ........................................ 1,190 101,191
Rio Tinto PLC+ ....................................... 7,532 101,184
-------------
2,012,848
-------------
REAL ESTATE -- 2.1%
REAL ESTATE COMPANIES -- 0.1%
Henderson Land Development Co. Ltd. .................. 10,000 50,718
REAL ESTATE INVESTMENT TRUSTS -- 2.0%
Equity Residential Properties Trust .................. 9,700 487,425
Starwood Hotels & Resorts ............................ 9,800 523,687
-------------
1,061,830
-------------
UTILITIES -- 2.7%
ELECTRIC UTILITIES -- 1.9%
Electricidad de Portugal SA .......................... 4,612 107,049
Hong Kong Electric Holdings Ltd. ..................... 7,000 24,029
Potomac Electric Power Co. ........................... 18,300 458,644
Scottish Power PLC ................................... 21,808 205,532
VEBA AG .............................................. 1,840 130,523
TELEPHONE -- 0.8%
AT&T Corp. ........................................... 2,100 137,813
Ote Greek Telecom .................................... 2,100 52,566
Portugal Telecom SA .................................. 1,382 71,899
Sprint Corp. ......................................... 2,200 148,912
-------------
1,336,967
-------------
TOTAL COMMON STOCK (cost $35,379,179)................. 38,772,366
-------------
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 18.8% AMOUNT
<S> <C> <C>
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 0.3%
RETAIL -- 0.3%
Federated Department Stores, Inc. 8.50% 2003.......... $ 40,000 43,655
Rite Aid Corp. 6.70% 2001............................. 100,000 101,532
-------------
145,187
-------------
CONSUMER STAPLES -- 0.2%
FOOD, BEVERAGE & TOBACCO -- 0.2%
Philip Morris Cos, Inc. 6.80% 2003.................... 100,000 101,484
Philip Morris Cos, Inc. 7.50% 2004.................... 20,000 20,965
-------------
122,449
-------------
</TABLE>
----------------
57
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY -- 0.4%
ENERGY SERVICES -- 0.2%
Petroleum Geo Services ASA 7.50% 2007................. $ 100,000 $ 105,918
ENERGY SOURCES -- 0.2%
KN Energy, Inc. 6.45% 2003............................ 40,000 40,032
Saga Petroleum ASA 7.25% 2027......................... 40,000 39,851
-------------
185,801
-------------
FINANCE -- 4.6%
BANKS -- 1.0%
ABN Amro Bank Nv Chicago Branch 7.25% 2005............ 40,000 41,821
First Union Lehman Brothers Mortgage Trust 6.65%
2007................................................. 25,000 25,310
Merita Bank Ltd. 6.50% 2006........................... 40,000 39,721
Nationsbank Corp. 6.88% 2005.......................... 45,000 46,253
Popular, Inc., 6.40% 2000............................. 100,000 100,379
Provident Cos., Inc. 7.41% 2038....................... 50,000 50,032
St. Paul Bancorp 7.13% 2004........................... 100,000 101,952
Svenska Handelsbank 8.13% 2007........................ 65,000 71,768
FINANCIAL SERVICES -- 3.1%
Advanta Mortgage Loan Trust 6.69% 2017................ 25,000 25,200
Advanta Mortgage Loan Trust 7.05% 2021................ 25,000 25,347
Amresco Residential Securities 6.60% 2018............. 20,000 20,061
Associates Corp. of North America 6.50% 2002.......... 60,000 60,574
Commercial Mortgage Acceptance Corp. 6.53% 2007#...... 15,000 15,183
Commercial Mortgage Acceptance Corp. 6.57% 2030#...... 40,000 40,462
Ford Motor Credit Co. 7.00% 2001...................... 60,000 61,618
Ford Motor Credit Co. 8.00% 2002...................... 40,000 42,551
General Motors Acceptance Corp. 6.63% 2002............ 40,000 40,628
Green Tree Financial Corp. 6.24% 2016#................ 90,000 89,747
Green Tree Financial Corp. 6.93% 2028................. 55,000 56,339
Green Tree Recreational Equipment 6.18% 2019#......... 290,000 289,819
Green Tree Recreational Equipment 6.55% 2028.......... 36,395 36,612
Harley Davidson Eagle Motorcycle Trust 6.20% 2003..... 150,000 151,000
Lehman Brothers Holdings, Inc. 6.50% 2002............. 105,000 105,101
Merrill Lynch Mortgage Investors, Inc. 6.22% 2030#.... 105,000 106,378
Merrill Lynch Mortgage Investors, Inc. 6.54% 2029#.... 80,000 80,225
Money Store, Inc. 8.05% 2002.......................... 20,000 21,163
Morgan Stanley Capital I, Inc. 7.22% 2028#............ 55,000 57,836
PaineWebber Group, Inc., 6.65% 2002................... 135,000 135,652
PNC Mortgage Securities Corp. 6.60% 2027 ............. 21,041 21,158
United States West Capital Funding, Inc. 6.85% 2002... 100,000 101,873
INSURANCE -- 0.5%
Hartford Life, Inc. 7.10% 2007........................ 100,000 103,700
TIG Holdings, Inc. 8.13% 2005......................... 40,000 42,891
Travelers Capital II 7.75% 2036....................... 100,000 102,844
-------------
2,311,198
-------------
INDUSTRIAL & COMMERCIAL -- 0.9%
AEROSPACE & MILITARY TECHNOLOGY -- 0.3%
Lockheed Martin Corp. 7.25% 2006...................... 115,000 120,628
Raytheon Co. 6.45% 2002............................... 35,000 35,253
</TABLE>
- ----------------
58
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (CONTINUED)
MULTI-INDUSTRY -- 0.1%
Williams Cos, Inc. 6.13% 2002......................... $ 40,000 $ 39,611
TRANSPORTATION -- 0.5%
Continental Airlines 6.54% 2009....................... 60,000 59,556
Continental Airlines 6.80% 2009....................... 30,000 30,117
CSX Corp. 7.95% 2027.................................. 100,000 111,853
Hertz Corp. 7.00% 2028................................ 65,000 63,478
-------------
460,496
-------------
INFORMATION & ENTERTAINMENT -- 0.2%
BROADCASTING & MEDIA -- 0.2%
News America Holdings, Inc. 7.70% 2025................ 70,000 73,283
Time Warner Entertainment Co LP 8.38% 2033............ 25,000 28,677
-------------
101,960
-------------
INFORMATION TECHNOLOGY -- 0.1%
TELECOMMUNICATIONS -- 0.1%
Compania de Telecomunicaciones 7.63% 2006............. 60,000 60,763
-------------
MATERIALS -- 0.1%
CHEMICALS -- 0.1%
Solutia, Inc. 6.72% 2037.............................. 45,000 45,645
-------------
MUNICIPAL BONDS -- 0.1%
MUNICIPAL BONDS -- 0.1%
New Jersey Economic Development Authority, Series A
7.43% 2029........................................... 40,000 43,813
-------------
U.S. GOVERNMENT & AGENCIES -- 11.3%
Federal Home Loan Mortgage Corp. 6.00% 2008........... 75,000 73,265
Federal National Mortgage Association 5.50% 2011...... 78,234 75,887
Federal National Mortgage Association 6.00% 2009...... 60,000 58,631
Federal National Mortgage Association 7.00% 2023...... 10,415 10,256
Federal National Mortgage Association 8.50% 2019...... 35,000 37,756
Federal National Mortgage Association 9.00% 2026...... 64,123 67,980
Government National Mortgage Association 5.50% TBA.... 60,000 60,319
Government National Mortgage Association 6.50% TBA.... 225,000 222,678
Government National Mortgage Association 7.00% 2023... 19,249 19,721
Government National Mortgage Association 7.00% 2025... 33,155 33,948
Government National Mortgage Association 7.00% 2012... 130,930 133,870
Government National Mortgage Association 7.00% 2024... 224,248 227,456
Government National Mortgage Association 7.00% 2025... 45,606 46,077
Government National Mortgage Association 7.00% 2026... 81,938 82,782
Government National Mortgage Association 7.00% 2025... 15,445 15,814
Government National Mortgage Association 7.00% 2028... 1,573,969 1,590,196
Government National Mortgage Association 7.38% 2026... 18,197 18,657
Government National Mortgage Association 7.50% 2023... 140,362 144,221
Government National Mortgage Association 7.50% 2026... 337,857 346,408
Government National Mortgage Association 7.50% 2027... 318,620 328,731
Government National Mortgage Association 8.00% 2026... 85,000 88,001
Government National Mortgage Association 8.00% 2027... 151,499 156,849
</TABLE>
----------------
59
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES (CONTINUED)
United States Treasury Bonds 6.13% 2027............... $ 340,000 $ 348,660
United States Treasury Bonds 6.38% 2027............... 105,000 110,906
United States Treasury Notes 5.50% 2000............... 690,000 688,703
United States Treasury Notes 5.50% 2003............... 260,000 258,456
United States Treasury Notes 5.63% 1999............... 460,000 460,216
-------------
5,706,444
-------------
UTILITIES -- 0.6%
ELECTRIC UTILITIES -- 0.5%
Arizona Public Services Co. 6.75% 2006................ 160,000 162,950
Southern California Edison Co. 5.88% 2001............. 100,000 99,695
TELEPHONE -- 0.1%
WorldCom, Inc. 7.75% 2007............................. 50,000 53,902
-------------
316,547
-------------
TOTAL BONDS & NOTES (cost $9,441,170)................. 9,500,303
-------------
<CAPTION>
RIGHTS -- 0.0%+
<S> <C> <C>
- -------------------------------------------------------------------------------------
FINANCE -- 0.0%
BANKS -- 0.0%
Banco Comercial Portugues SA 4/20/98.................. 877 3,104
Development Bank of Singapore Ltd. 4/28/98 ........... 1,200 2,452
INSURANCE -- 0.0%
Allianz AG 4/1/98 .................................... 150 742
-------------
6,298
-------------
MATERIALS -- 0.0%
METALS & MINERAL -- 0.0%
LaFarge Corp. 4/8/98.................................. 1,190 1,555
-------------
TOTAL RIGHTS (cost $0)................................ 7,853
-------------
TOTAL INVESTMENT SECURITIES (cost $44,820,349)........ 48,280,522
-------------
</TABLE>
- ----------------
60
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 5.8% AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 5.8%
Agreement with Swiss Bank Corp.- Warburg, bearing
interest of 5.92% dated 3/31/98, to be repurchased
4/01/98 in the amount of $2,911,479 and
collateralized by $2,655,000 U.S. Treasury Notes
6.88% due 8/15/25, approximate aggregate value
$2,973,059
(cost $2,911,000).................................... $ 2,911,000 $ 2,911,000
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(cost $47,731,349) 101.6% 51,191,522
Liabilities in excess of other assets -- (1.6) (807,118)
------ -------------
NET ASSETS -- 100.0% $ 50,384,404
------ -------------
------ -------------
</TABLE>
- -------------
+ Non-income producing securities
# Fair valued security; see Note 2
ADR -- American Depository Receipt
SEK -- Swedish Kroner
TBA -- Security purchased on a forward commitment basis with an approximate
principal amount and no definitive maturity date. The actual principal
amount and maturity date will be determined upon settlement date.
<TABLE>
<CAPTION>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
- ----------------------------------------------------------------------------------------
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JPY 24,716,600 USD 195,386 06/12/98 $ 7,976
JPY 21,983,400 USD 174,868 06/12/98 8,182
-------
Net Unrealized Appreciation.......................................... $ 16,158
-------
-------
</TABLE>
- -------------
JPY -- Japanese Yen
USD -- United States Dollar
See Notes to Financial Statements
----------------
61
<PAGE>
- ------------------
SEASONS SERIES TRUST
STOCK PORTFOLIO INVESTMENT PORTFOLIO -- MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK -- 94.4% SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 5.1%
HOUSING -- 0.9%
Masco Corp. .......................................... 6,600 $ 392,700
RETAIL -- 4.2%
AutoZone, Inc.+ ...................................... 4,800 162,600
Circuit City Stores, Inc. ............................ 1,500 64,125
CVS Corp. ............................................ 3,107 234,579
Home Depot, Inc. ..................................... 4,300 289,981
Safeway, Inc.+ ....................................... 12,700 469,106
Tag Heuer International SA ADR+ ...................... 17,400 202,275
Wal-Mart Stores, Inc. ................................ 6,500 330,281
-------------
2,145,647
-------------
CONSUMER STAPLES -- 4.8%
FOOD, BEVERAGE & TOBACCO -- 2.7%
PepsiCo, Inc. ........................................ 10,700 456,756
Philip Morris Cos., Inc. ............................. 16,000 667,000
HOUSEHOLD PRODUCTS -- 2.1%
Gillette Co. ......................................... 1,800 213,637
Kimberly-Clark Corp. ................................. 6,200 310,775
Kimberly-Clark de Mexico SA de CV, Class A ........... 24,400 126,069
Procter & Gamble Co. ................................. 2,800 236,250
-------------
2,010,487
-------------
ENERGY -- 3.3%
ENERGY SERVICES -- 0.8%
Halliburton Co. ...................................... 4,200 210,788
Schlumberger Ltd. .................................... 1,700 128,775
ENERGY SOURCES -- 2.5%
Mobil Corp. .......................................... 5,000 383,125
Petroleo Brasileiro SA ADR ........................... 5,600 132,976
Royal Dutch Petroleum Co. ............................ 9,000 511,312
-------------
1,366,976
-------------
FINANCE -- 20.2%
BANKS -- 7.5%
BCA Fideuram SpA ..................................... 35,500 247,117
Citicorp ............................................. 3,000 426,000
First Union Corp. .................................... 6,700 380,225
Mellon Bank Corp. .................................... 3,500 222,250
NationsBank Corp. .................................... 5,705 416,109
Northern Trust Corp. ................................. 2,100 156,975
Norwest Corp. ........................................ 14,400 598,500
Toronto Dominion Bank ................................ 7,000 303,625
Wells Fargo & Co. .................................... 1,200 397,500
</TABLE>
- ----------------
62
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
FINANCIAL SERVICES -- 7.5%
Federal Home Loan Mortgage Corp. ..................... 25,000 $ 1,185,937
Federal National Mortgage Association ................ 10,300 651,475
First Data Corp. ..................................... 12,300 399,750
H&R Block, Inc. ...................................... 6,100 290,131
SLM Holding .......................................... 5,300 231,213
Travelers Group, Inc. ................................ 6,800 408,000
INSURANCE -- 5.2%
Ace Co., Ltd. ........................................ 14,300 538,931
Aetna, Inc. .......................................... 1,200 100,125
Fairfax Financial Holdings Ltd.+ ..................... 815 280,132
Mutual Risk Management Ltd. .......................... 9,400 318,425
Partner Re Ltd. ...................................... 4,100 201,413
Travelers Property Casualty Corp., Class A ........... 5,900 259,600
UNUM Corp. ........................................... 8,900 491,169
-------------
8,504,602
-------------
HEALTHCARE -- 12.2%
DRUGS -- 8.3%
American Home Products Corp. ......................... 2,500 238,438
Amgen, Inc.+ ......................................... 1,900 115,663
Astra AB ............................................. 8,866 176,311
Biogen, Inc.+ ........................................ 5,900 284,306
Bristol-Myers Squibb Co. ............................. 4,400 458,975
Eli Lilly & Co. ...................................... 2,700 160,988
Genentech, Inc.+ ..................................... 5,000 352,187
Merck & Co., Inc. .................................... 4,100 526,337
Novartis AG .......................................... 199 352,182
Pfizer, Inc. ......................................... 5,200 518,375
Warner-Lambert Co. ................................... 1,800 306,562
HEALTH SERVICES -- 3.0%
HEALTHSOUTH Corp.+ ................................... 15,400 432,162
Pacificare Health Systems, Inc., Class B+ ............ 1,400 105,350
Tenet Healthcare Corp.+ .............................. 8,200 297,763
United Healthcare Corp. .............................. 6,300 407,925
MEDICAL PRODUCTS -- 0.9%
Baxter International, Inc. ........................... 1,800 99,225
Guidant Corp. ........................................ 1,000 73,375
Johnson & Johnson .................................... 3,100 227,269
-------------
5,133,393
-------------
INDUSTRIAL & COMMERCIAL -- 14.2%
AEROSPACE & MILITARY TECHNOLOGY -- 1.9%
AlliedSignal, Inc. ................................... 14,400 604,800
Raytheon Co. ......................................... 3,100 180,963
BUSINESS SERVICES -- 4.8%
Cendant Corp.+ ....................................... 13,600 538,900
Ikon Office Solutions, Inc. .......................... 7,700 266,131
</TABLE>
----------------
63
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (CONTINUED)
BUSINESS SERVICES (CONTINUED)
Newmont Mining Corp. ................................. 9,400 $ 287,288
Rentokil Initial PLC+ ................................ 55,900 337,811
Service Corp. International .......................... 4,100 173,994
USA Waste Services+ .................................. 9,200 409,975
ELECTRICAL EQUIPMENT -- 0.2%
Teradyne, Inc.+....................................... 2,400 96,150
MACHINERY -- 2.6%
Danaher Corp. ........................................ 10,200 774,562
Teleflex, Inc. ....................................... 7,800 327,600
MULTI-INDUSTRY -- 4.7%
Berkshire Hathaway, Inc. ............................. 6 403,200
Sara Lee Corp. ....................................... 5,200 320,450
Swire Pacific Ltd., Class A .......................... 11,000 58,203
Tomkins PLC .......................................... 68,100 416,382
Tyco International Ltd. .............................. 12,046 658,013
Unilever NV .......................................... 2,100 144,112
-------------
5,998,534
-------------
INFORMATION & ENTERTAINMENT -- 10.5%
BROADCASTING & MEDIA -- 5.0%
CBS Corp. ............................................ 9,700 329,194
Elsevier NV .......................................... 5,700 93,772
Omnicom Group, Inc. .................................. 8,300 390,619
Reuters Group PLC .................................... 1,326 85,610
Tribune Co. .......................................... 7,100 500,550
Vereenigde Ned Uitgevers ............................. 15,100 516,382
Vodafone Group PLC ................................... 18,900 196,317
COMMUNICATION EQUIPMENT -- 0.4%
Cox Communications, Inc., Class A+ ................... 4,300 180,600
ENTERTAINMENT PRODUCTS -- 1.0%
Hasbro, Inc. ......................................... 7,500 264,844
Mattel, Inc. ......................................... 3,700 146,612
LEISURE & TOURISM -- 4.1%
Carnival Corp., Class A .............................. 4,300 299,925
Disney (Walt) Co. .................................... 4,100 437,675
Granada Group PLC .................................... 14,100 253,500
Hilton Hotels Corp. .................................. 4,700 149,813
Hutchison Whampoa Ltd. ............................... 47,000 330,567
McDonald's Corp. ..................................... 2,500 150,000
Mirage Resorts, Inc.+ ................................ 3,100 75,369
-------------
4,401,349
-------------
INFORMATION TECHNOLOGY -- 18.0%
COMMUNICATION EQUIPMENT -- 3.2%
AirTouch Communications, Inc.+ ....................... 6,000 293,625
CIENA Corp.+ ......................................... 3,400 144,925
</TABLE>
- ----------------
64
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
COMMUNICATION EQUIPMENT (CONTINUED)
Nokia Corp., Class A ADR ............................. 3,900 $ 420,956
Telecomunicacoes de Brasileiras SA ADR+ .............. 1,600 207,700
Tellabs, Inc.+ ....................................... 4,300 288,638
COMPUTERS & BUSINESS EQUIPMENT -- 2.6%
Automatic Data Processing, Inc. ...................... 4,100 279,056
Compaq Computer Corp. ................................ 5,800 150,075
EMC Corp.+ ........................................... 5,600 211,750
Hewlett-Packard Co. .................................. 3,200 202,800
Honeywell, Inc. ...................................... 2,900 239,794
ELECTRONICS -- 6.0%
Analog Devices, Inc.+ ................................ 9,600 319,200
General Electric Co. ................................. 13,300 1,146,294
Getronics NV+ ........................................ 4,300 184,585
Intel Corp. .......................................... 1,900 148,319
Linear Technology Corp. .............................. 2,000 138,000
Maxim Integrated Products, Inc.+ ..................... 8,300 302,431
Molex, Inc., Class A ................................. 2,931 78,587
Philips Electronics NV ............................... 2,600 190,796
SOFTWARE -- 6.2%
Adobe Systems, Inc. .................................. 2,900 131,044
BMC Software, Inc.+ .................................. 5,700 477,731
Cadence Design Systems, Inc.+ ........................ 5,800 200,825
Cisco Systems, Inc.+ ................................. 3,400 232,475
Microsoft Corp.+ ..................................... 6,000 537,000
Networks Associates Inc.+ ............................ 3,500 231,875
Oracle Corp.+ ........................................ 10,050 317,203
Parametric Technology Corp.+ ......................... 15,100 503,019
-------------
7,578,703
-------------
MATERIALS -- 0.3%
CHEMICALS -- 0.3%
Rhone-Poulenc Ltd.+ .................................. 2,700 137,189
-------------
REAL ESTATE -- 2.3%
REAL ESTATE COMPANIES -- 0.6%
Security Capital U.S. Realty+ ........................ 19,600 258,720
REAL ESTATE INVESTMENT TRUSTS -- 1.7%
Crescent Real Estate Equities Co. .................... 7,300 262,800
Starwood Lodging Trust ............................... 8,300 443,531
-------------
965,051
-------------
UTILITIES -- 3.5%
TELEPHONE -- 3.5%
AT&T Corp. ........................................... 4,500 295,312
MCI Communications Corp. ............................. 7,900 391,050
Telecel-Comunicacaoes Pessoais, SA+ .................. 2,200 341,590
Telecom Italia SpA+ .................................. 18,239 111,755
</TABLE>
----------------
65
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
TELEPHONE (CONTINUED)
WorldCom, Inc.+ ...................................... 8,000 $ 344,500
-------------
1,484,207
-------------
TOTAL COMMON STOCK (cost $32,490,772) ................ 39,726,138
-------------
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 5.4% AMOUNT
<S> <C> <C>
- -------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 3.2%
Northern Illinois Gas Company 5.53% due 4/13/98 ...... $ 426,000 425,215
Reed Elsevier 6.05% due 4/1/98 ....................... 939,000 939,000
-------------
1,364,215
-------------
FEDERAL AGENCY OBLIGATIONS -- 2.2%
Federal National Mortgage Association Discount Notes
5.50% due 4/13/98 ................................... 929,000 927,297
-------------
TOTAL SHORT-TERM SECURITIES (cost $2,291,512) ........ 2,291,512
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(cost $34,782,284) 99.8 % 42,017,650
Other assets less liabilities -- 0.2 67,040
------ -----------
NET ASSETS -- 100.0 % $42,084,690
------ -----------
------ -----------
</TABLE>
- ------------
+ Non-income producing securities
ADR -- American Depository Receipt
See Notes to Financial Statements
- ----------------
66
<PAGE>
- ----------------
SEASONS SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<CAPTION>
MULTI- MULTI- ASSET
MULTI- MANAGED MANAGED MULTI- ALLOCATION:
MANAGED MODERATE INCOME/ MANAGED DIVERSIFIED
GROWTH GROWTH EQUITY INCOME GROWTH STOCK
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment securities, at value*................. $30,631,533 $30,800,823 $23,759,918 $17,123,049 $ 48,280,522 $39,726,138
Short-term securities*........................... 108,761 191,678 227,932 217,523 -- 2,291,512
Repurchase agreements (cost equals market)....... 2,503,000 2,241,000 1,871,000 1,001,000 2,911,000 --
Cash............................................. 30,336 -- 24,536 5,947 94,520 1,012
Foreign currency................................. -- -- -- 10 12,372 3,650
Receivables for --
Dividends and accrued interest................. 133,340 212,385 252,721 228,417 164,076 40,668
Fund shares sold............................... 78,087 48,629 59,807 17,077 95,448 82,744
Foreign currency contracts..................... 78,034 140,462 166,473 156,068 146,055 37,171
Sales of investments........................... 74,354 59,187 22,168 8,157 758,887 96,221
Unrealized appreciation on forward foreign
currency
contracts...................................... 14,517 13,992 11,045 8,983 16,158 --
Deferred organizational expenses................. 12,994 12.994 12,994 12,994 12,994 12,994
Prepaid expenses................................. 218 229 171 138 338 284
-------------------------------------------------------------------------------
33,665,174 33,721,379 26,408,765 18,779,363 52,492,370 42,292,394
-------------------------------------------------------------------------------
LIABILITIES:
Payables for --
Purchases of investments....................... 1,037,833 807,844 228,876 198,454 1,860,383 99,238
Foreign currency contracts..................... 79,603 143,285 169,819 159,205 145,751 37,221
Management fees................................ 22,865 21,719 16,455 11,107 33,587 29,565
Fund shares redeemed........................... 5,504 2,071 1,333 1,000 4,716 4,239
Due to custodian bank............................ -- 84,620 -- -- -- --
Unrealized depreciation on forward foreign
currency
contracts...................................... 4,431 4,962 4,545 4,223 -- --
Other accrued expenses........................... 34,377 34,714 30,995 27,591 63,529 37,441
-------------------------------------------------------------------------------
1,184,613 1,099,215 452,023 401,580 2,107,966 207,704
-------------------------------------------------------------------------------
NET ASSETS....................................... $32,480,561 $32,622,164 $25,956,742 $18,377,783 $ 50,384,404 $42,084,690
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Shares of beneficial interest outstanding
(unlimited shares authorized).................. 2,528,174 2,636,697 2,202,350 1,627,196 4,301,676 2,871,299
Net asset value per share........................ $12.85 $12.37 $11.79 $11.29 $11.71 $14.66
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Capital paid in.................................. $28,862,140 $29,576,002 $24,017,960 $17,301,664 $ 46,818,807 $33,890,379
Accumulated undistributed (distributions in
excess of) net investment income............... 103,862 152,216 181,493 170,487 169,315 (7,952)
Accumulated undistributed net realized gain
(loss) on investments.......................... 97,251 50,829 143,205 89,341 (80,064) 967,017
Unrealized appreciation on investments........... 3,407,218 2,834,086 1,607,601 811,550 3,460,173 7,235,366
Unrealized foreign exchange gain (loss) on other
assets and liabilities......................... 10,090 9,031 6,483 4,741 16,173 (120)
-------------------------------------------------------------------------------
$32,480,561 $32,622,164 $25,956,742 $18,377,783 $ 50,384,404 $42,084,690
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
- ---------------
* Cost
Investment securities.......................... $27,222,816 $27,964,034 $22,149,115 $16,308,502 $ 44,820,349 $32,490,772
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Short-term securities.......................... $ 110,260 $ 194,381 $ 231,134 $ 220,520 $ -- $ 2,291,512
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
----------------
67
<PAGE>
- ----------------
SEASONS SERIES TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1998#
<TABLE>
<CAPTION>
MULTI- MULTI- ASSET
MULTI- MANAGED MANAGED MULTI- ALLOCATION:
MANAGED MODERATE INCOME/ MANAGED DIVERSIFIED
GROWTH GROWTH EQUITY INCOME GROWTH STOCK
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Interest............................................ $ 365,941 $ 510,705 $ 576,100 $ 555,748 $ 453,579 $ 84,456
Dividends........................................... 67,242 57,559 34,338 16,104 347,227 220,527
--------------------------------------------------------------------------
Total income*..................................... 433,183 568,264 610,438 571,852 800,806 304,983
--------------------------------------------------------------------------
EXPENSES:
Management fees..................................... 137,424 135,378 101,740 76,624 208,284 178,227
Custodian fees...................................... 52,639 54,445 48,027 45,115 129,107 50,617
Auditing fees....................................... 14,255 14,355 14,250 14,195 11,335 11,230
Reports to investors................................ 11,380 11,320 9,000 6,527 17,530 15,405
Legal fees.......................................... 2,415 2,403 2,289 2,251 2,491 3,384
Amortization of organizational expenses............. 2,241 2,241 2,241 2,241 2,241 2,241
Trustees' fees...................................... 1,183 1,199 957 763 1,881 1,606
Other expenses...................................... 1,296 1,300 1,276 1,257 1,352 1,327
--------------------------------------------------------------------------
Total expenses before reimbursement............... 222,833 222,641 179,780 148,973 374,221 264,037
Expenses reimbursed by the investment adviser..... (23,646) (29,927) (36,590) (43,490) (77,724) (10,325)
--------------------------------------------------------------------------
Net investment income................................. 233,996 375,550 467,248 466,369 504,309 51,271
--------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES:
Net realized gain on investments.................... 450,946 353,817 281,459 189,755 426,906 1,303,958
Net realized foreign exchange gain (loss) on
other assets and liabilities...................... 18,930 26,437 23,750 26,463 795 (13,405)
Net unrealized appreciation on investments.......... 3,407,218 2,834,086 1,607,601 811,550 3,460,173 7,235,366
Net unrealized foreign exchange gain (loss) on other
assets and liabilities............................ 10,090 9,031 6,483 4,741 16,173 (120)
--------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign exchange.................................. 3,887,184 3,223,371 1,919,293 1,032,509 3,904,047 8,525,799
--------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........................... $4,121,180 $3,598,921 $2,386,541 $1,498,878 $4,408,356 $8,577,070
--------------------------------------------------------------------------
--------------------------------------------------------------------------
- ---------------
* Net of foreign withholding taxes on interest and
dividends of........................................ $ 1,723 $ 1,792 $ 1,539 $ 1,284 $ 7,912 $ 5,646
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
# Commenced operations April 15, 1997
See Notes to Financial Statements
- ----------------
68
<PAGE>
- ----------------
SEASONS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED MARCH 31, 1998#
<TABLE>
<CAPTION>
MULTI- MULTI- ASSET
MULTI- MANAGED MANAGED MULTI- ALLOCATION:
MANAGED MODERATE INCOME/ MANAGED DIVERSIFIED
GROWTH GROWTH EQUITY INCOME GROWTH STOCK
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................. $ 233,996 $ 375,550 $ 467,248 $ 466,369 $ 504,309 $ 51,271
Net realized gain on investments.................. 450,946 353,817 281,459 189,755 426,906 1,303,958
Net realized foreign exchange gain (loss) on
other assets and liabilities.................... 18,930 26,437 23,750 26,463 795 (13,405)
Net unrealized appreciation/depreciation on
investments..................................... 3,407,218 2,834,086 1,607,601 811,550 3,460,173 7,235,366
Net unrealized foreign exchange gain (loss) on
other assets and liabilities.................... 10,090 9,031 6,483 4,741 16,173 (120)
------------------------------------------------------------------------------
Net increase in net assets resulting from
operations...................................... 4,121,180 3,598,921 2,386,541 1,498,878 4,408,356 8,577,070
------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income............ (145,000) (240,000) (295,000) (310,000) (350,000) (50,000)
Distributions from net realized gain on
investments................................... (360,000) (315,000) (155,000) (115,000) (495,000) (335,000)
------------------------------------------------------------------------------
Total dividends and distributions to
shareholders.................................... (505,000) (555,000) (450,000) (425,000) (845,000) (385,000)
------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold......................... 35,042,648 36,053,150 30,442,119 24,213,091 58,480,233 47,040,730
Proceeds from shares issued for reinvestment of
dividends and distributions..................... 505,000 555,000 450,000 425,000 845,000 385,000
Cost of shares repurchased........................ (6,683,267) (7,029,907) (6,871,918) (7,334,186) (12,504,185) (13,533,110)
------------------------------------------------------------------------------
Net increase in net assets resulting from capital
share transactions.............................. 28,864,381 29,578,243 24,020,201 17,303,905 46,821,048 33,892,620
------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS...................... 32,480,561 32,622,164 25,956,742 18,377,783 50,384,404 42,084,690
NET ASSETS:
Beginning of period............................... 0 0 0 0 0 0
------------------------------------------------------------------------------
End of period..................................... $32,480,561 $32,622,164 $25,956,742 $18,377,783 $ 50,384,404 $42,084,690
------------------------------------------------------------------------------
------------------------------------------------------------------------------
- ---------------
Accumulated undistributed (distributions in excess
of) net investment income....................... $ 103,862 $ 152,216 $ 181,493 $ 170,487 $ 169,315 $ (7,952)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Shares issued and repurchased:
Sold.............................................. 3,051,992 3,193,790 2,768,731 2,243,277 5,347,715 3,890,293
Issued in reinvestment of dividends and
distributions................................... 43,395 48,593 40,581 39,192 77,457 30,323
Repurchased....................................... (567,213) (605,686) (606,962) (655,273) (1,123,496) (1,049,317)
------------------------------------------------------------------------------
Net increase...................................... 2,528,174 2,636,697 2,202,350 1,627,196 4,301,676 2,871,299
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
# Commenced operations April 15, 1997
See Notes to Financial Statements
----------------
69
<PAGE>
- ----------------
SEASONS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS: Seasons Series 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 certain
annuity contracts 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 Arizona.
The Trust currently issues six separate series of shares ("Portfolios"), each of
which represents a separate managed portfolio of securities with its own
investment objective. All shares may be purchased or redeemed by the Account at
net asset value without any sales or redemption charge.
The investment objectives for each portfolio are as follows:
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 ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO seeks capital appreciation.
The STOCK PORTFOLIO seeks long-term capital appreciation, and secondarily,
increasing dividend income through investments primarily in well-established
growth companies.
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. Janus Capital Corporation ("Janus") and
Wellington Management Company, LLP ("WMC") both serve as subadvisers for each of
the Multi-Managed Portfolios. Each of Janus and WMC manages one particular
portion of the assets (each, a "Managed Component" or "component") of each of
the Multi-Managed Portfolios, subject to the supervision of SunAmerica. Putnam
Investment Management, Inc. ("Putnam") serves as subadviser for the Asset
Allocation: Diversified Growth Portfolio and T. Rowe Price Associates, Inc. ("T.
Rowe Price") serves as subadviser for the Stock Portfolio, each subject to the
supervision of SunAmerica. (Janus, WMC, Putnam and T. Rowe Price are referred to
herein individually as a "Subadviser," and collectively as the "Subadvisers.")
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.
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), subject, however, to certain tax diversification requirements.
Investments in each Multi-Managed Portfolio (and redemption requests) will be
allocated among the Managed Components of such Portfolio as described in the
chart below. The Trust expects that differences in investment returns among the
Managed Components of a Multi-Managed Portfolio will cause the actual percentage
of the Portfolio's assets allocated to each component to vary from the target
allocation over the course of a calendar quarter. Accordingly, the assets of
each Multi-Managed Portfolio will be reallocated or "rebalanced" among the
Managed Components on at least a quarterly basis to restore the target
allocations for such Portfolio.
<TABLE>
<CAPTION>
Managed Components As a Target Percentage
of each Multi-Managed Portfolio
--------------------------------------------------------------
SunAmerica/ WMC/
Aggressive Janus/ SunAmerica/ Fixed
Growth Growth Balanced Income
PORTFOLIO component component component component
- --------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Multi-Managed
Growth
Portfolio 20% 40% 20% 20%
Multi-Managed
Moderate
Growth
Portfolio 18% 28% 18% 36%
Multi-Managed
Income/
Equity
Portfolio 0% 18% 28% 54%
Multi-Managed
Income
Portfolio 0% 8% 17% 75%
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES: The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from these estimates.
In the opinion of management of the Trust, the accompanying financial statements
contain all normal and recurring adjustments necessary for the fair presentation
of the financial position of
- ----------------
70
<PAGE>
the Trust at March 31, 1998, and the results of its operations, the changes in
its net assets and its financial highlights for the period then ended. The
following is a summary of the significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
SECURITY VALUATIONS: Stocks are stated at value based upon closing sales prices
reported on recognized securities exchanges or, for listed securities having no
sales reported and for unlisted securities, upon last-reported bid prices.
Nonconvertible bonds, debentures, other long-term debt securities, and
short-term securities with original or remaining maturities in excess of 60 days
are valued at prices obtained for the day of valuation from a bond pricing
service of a major dealer in bonds when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, an
over-the-counter or exchange quotation at the mean of representative bid or
asked prices 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. If a security's price is available from more than one
foreign exchange, a portfolio uses the exchange that is the primary market for
the security. Futures contracts are valued at the last sale price established
each day by the board of trade or exchange on which they are traded. 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. Securities for which quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Trust's Trustees.
FOREIGN CURRENCY TRANSLATION: The books and records of the Trust are maintained
in U.S. dollars. Assets and liabilities denominated in foreign currencies and
commitments under forward foreign currency contracts are translated into U.S.
dollars at the mean of the quoted bid and asked prices of such currencies
against the U.S. dollar.
The Trust does not isolate that portion of the results of operations arising as
a result of changes in the foreign exchange rates from the changes in the market
prices of securities held at fiscal year-end. Similarly, the Trust does not
isolate the effect of changes in foreign exchange rates from the changes in the
market prices of portfolio securities sold during the year.
Realized foreign exchange gains and losses on other assets and liabilities and
change in unrealized foreign exchange gains and losses on other assets and
liabilities include realized foreign exchange gains and losses from currency
gains or losses between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends and
foreign withholding taxes recorded on the Trust's books and the U.S. dollar
equivalent amounts actually received or paid and changes in the unrealized
foreign exchange gains and losses relating to the other assets and liabilities
arising as a result of changes in the exchange rate.
SECURITIES TRANSACTIONS, INVESTMENT INCOME, EXPENSES, DIVIDENDS AND
DISTRIBUTIONS TO SHAREHOLDERS: Securities transactions are recorded on a trade
date basis. Interest income is accrued daily except when collection is not
expected. Dividend income is recorded on the ex-dividend date except for certain
dividends from foreign securities, which are recorded as soon as the Trust is
informed after the ex-dividend date. The Trust amortizes premiums and accretes
discounts on fixed income securities, as well as those original issue discounts
for which amortization is required for federal income tax purposes; gains and
losses realized upon the sale of such securities are based on their identified
cost. Portfolios which earn foreign income and capital gains may be subject to
foreign withholding taxes at various rates.
Common expenses incurred by the Trust are allocated among the Portfolios based
upon relative net assets or other appropriate allocation methods. In all other
respects, expenses are charged to each Portfolio as incurred on a specific
identification basis.
Dividends from net investment income and capital gain distributions, if any, are
paid annually.
The Portfolios record dividends and distributions to their shareholders on the
ex-dividend date. The amount of dividends and distributions from net investment
income and net realized capital gains are determined and presented in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent
distributions exceed current and accumulated earnings and profits for federal
income tax purposes, they are reported as distributions of paid-in capital. Net
investment income/loss, net realized gain/loss, and net assets are not affected.
----------------
71
<PAGE>
For the period ended March 31, 1998, the reclassification arising from
"book/tax" differences resulted in increases (decreases) to the components of
net assets as follows:
<TABLE>
<CAPTION>
Accumulated Accumulated
Undistributed Undistributed
Net Investment Net Realized Paid-In
Income/(Loss) Gain/(Loss) Capital
-------------- ------------- ---------
<S> <C> <C> <C>
Multi-Managed Growth
Portfolio $ 14,866 $ (12,625) $ (2,241)
Multi-Managed Moderate
Growth Portfolio 16,666 (14,425) (2,241)
Multi-Managed Income/
Equity Portfolio 9,245 (7,004) (2,241)
Multi-Managed Income
Portfolio 14,118 (11,877) (2,241)
Asset Allocation:
Diversified Growth
Portfolio 15,006 (12,765) (2,241)
Stock Portfolio (9,223) 11,464 (2,241)
</TABLE>
ORGANIZATIONAL EXPENSES: Costs incurred by the Adviser in connection with the
organization and registration of the Trust amounted to $91,410. Organizational
expenses are amortized on a straight line basis by each applicable Portfolio of
the Trust over the period of benefit not to exceed 60 months from the date the
respective Portfolio commenced operations.
3. OPERATING POLICIES:
REPURCHASE AGREEMENTS: The Trust's custodian takes possession of the collateral
pledged for investments in repurchase agreements ("repo" or collectively
"repos"). The underlying collateral is valued daily on a mark-to-market basis to
assure that the value, including accrued interest, is at least equal to the
repurchase price. In the event of default of the obligation to repurchase, the
Trust has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Trust may be
delayed or limited.
Pursuant to exemptive relief granted by the Securities and Exchange Commission,
the Portfolios are permitted to participate in joint repo transactions with
other affiliated investment companies.
At March 31, 1998, the Multi-Managed Growth, Multi-Managed Moderate Growth,
Multi-Managed Income/ Equity and Multi-Managed Income Portfolios had a 2.2%,
1.6%, 1.0% and 0.3%, respectively, undivided interest, representing $2,153,000,
$1,566,000, $1,011,000 and $256,000, respectively, in principal amount, in a
joint repo with PaineWebber, Inc., which is dated March 31, 1998, bears interest
at the rate of 5.75% per annum, has a principal amount of $97,641,000 and a
repurchase price of $97,656,595, matures April 1, 1998 and is collateralized by
$50,000,000 of U.S. Treasury Bonds (bearing interest at the rate of 6.375% per
annum and maturing January 15, 1999) and $47,885,000 of U.S. Treasury Notes
(bearing interest at the rate of 6.25% per annum and maturing June 30, 1998),
which together have an approximate value of $99,682,597.
In addition, at March 31, 1998, the above-mentioned Portfolios had a 0.4%, 0.7%,
0.9% and 0.8%, respectively, undivided interest, representing $350,000,
$675,000, $860,000 and $745,000, respectively, in principal amount, in a joint
repo with Swiss Bank Corp., which is dated March 31, 1998, bears interest at a
rate of 5.90% per annum, has a principal amount of $99,645,000 and a repurchase
price of $99,661,331, matures April 1, 1998 and is collateralized by $99,160,000
of U.S. Treasury Bonds, which bear interest at a rate of 5.875% per annum,
mature November 15, 1999 and have an approximate value of $101,705,597.
FORWARD FOREIGN CURRENCY CONTRACTS: Certain portfolios may enter into forward
foreign currency contracts ("forward contracts") to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates or to enhance return. A forward contract is an agreement
between two parties to buy or sell currency at a set price on a future date. The
market value of the contract will fluctuate with changes in currency exchange
rates. The contract is marked to market daily using the forward rate and the
change in market value is recorded by the Portfolio as unrealized gain or loss.
On settlement date, the Portfolio records either realized gains or losses when
the contract is closed equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Forward contracts involve elements of risk in excess of the amounts reflected in
the Statement of Assets and Liabilities. The Trust bears the risk of an
unfavorable change in the foreign exchange rate underlying the forward contract.
4. PORTFOLIO SECURITIES: The Trust intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
distribute all of its taxable income, including any net realized gains on
investments, to its shareholders. Therefore, no federal tax provision is
required.
- ----------------
72
<PAGE>
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities, including short-term securities at March 31, 1998, were as follows:
<TABLE>
<CAPTION>
MULTI- MULTI-
MULTI- MANAGED MANAGED
MANAGED MODERATE INCOME/
GROWTH GROWTH EQUITY
------------- ------------- -------------
<S> <C> <C> <C>
Cost............................... $ 29,856,314 $ 30,426,930 $ 24,256,123
------------- ------------- -------------
------------- ------------- -------------
Aggregate unrealized
gain............................. $ 3,554,293 $ 2,960,459 $ 1,667,071
Aggregate unrealized
(loss)........................... (167,313) (153,888) (64,344)
------------- ------------- -------------
Unrealized gain (loss), net........ $ 3,386,980 $ 2,806,571 $ 1,602,727
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
ASSET
MULTI- ALLOCATION:
MANAGED DIVERSIFIED
INCOME GROWTH STOCK*
------------- ------------- -------------
<S> <C> <C> <C>
Cost............................... $ 17,531,121 $ 47,831,779 $ 34,831,336
------------- ------------- -------------
------------- ------------- -------------
Aggregate unrealized
gain............................. $ 863,083 $ 3,872,944 $ 7,443,311
Aggregate unrealized
(loss)........................... (52,632) (513,201) (256,997)
------------- ------------- -------------
Unrealized gain (loss), net........ $ 810,451 $ 3,359,743 $ 7,186,314
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
*Post 10/31/97 Currency Loss Deferrals: Stock Portfolio $7,952
5. MANAGEMENT OF THE TRUST: 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.
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 average daily net
assets ("Assets") for the Multi-Managed Growth Portfolio, .85% of Assets for the
Multi-Managed Moderate Growth Portfolio, .81% of Assets for the Multi-Managed
Income/Equity Portfolio, .77% of Assets for the Multi-Managed Income Portfolio,
.85% of Assets for the Asset Allocation: Diversified Growth Portfolio and .85%
of Assets for the Stock Portfolio.
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. The organizations below serve as
Subadvisers to the portfolios pursuant to Subadvisory Agreements with
SunAmerica. 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 Subadvisory
fees are payable by the Adviser to the respective Subadviser and do not increase
Portfolio expenses.
Each Subadviser is paid monthly by SunAmerica a fee equal to a percentage of the
Assets of the Portfolio allocated to the Subadviser. SunAmerica has agreed to
pay Janus a composite fee of .60% on the first $200 million and .55% on Assets
over $200 million, and WMC a composite fee of .225% on the first $100 million,
.125% on the next $100 million and .10% on Assets over $200 million, in each
case based on the aggregate Assets it manages in the four Multi-Managed
Portfolios. In addition, SunAmerica has agreed to pay each of Putnam and T. Rowe
Price a fee at the following annual rates, expressed as a percentage of the
Assets of the respective Portfolio: with regard to the Asset Allocation:
Diversified Growth Portfolio, .55% on the first $150 million, .50% on the next
$150 million, and .40% on Assets over $300 million; and, with regard to the
Stock Portfolio, .50% on the first
$40 million, and .40% on Assets over $40 million.
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 Portfolio's Assets: Multi-Managed Growth Portfolio,
1.29%; Multi-Managed Moderate Growth Portfolio, 1.21%; Multi-Managed
Income/Equity Portfolio, 1.14%; Multi-Managed Income Portfolio, 1.06%; Asset
Allocation: Diversified Growth Portfolio, 1.21%; and Stock Portfolio, 1.21%. 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.
As of March 31, 1998 the Multi-Managed Growth, Multi-Managed Moderate Growth,
Multi-Managed Income/ Equity, Multi-Managed Income, Asset Allocation:
Diversified Growth and Stock Portfolios had $23,646, $29,927, $36,590, $43,490,
$77,724 and $10,325, respectively of expenses previously waived or reimbursed by
SunAmerica that are subject to recoupment.
----------------
73
<PAGE>
6. PURCHASES AND SALES OF SECURITIES: Information with respect to purchases and
sales of long-term securities for the period ended March 31, 1998 was as
follows:
<TABLE>
<CAPTION>
MULTI- MULTI-
MULTI- MANAGED MANAGED
MANAGED MODERATE INCOME/
GROWTH GROWTH EQUITY
------------- ------------- -------------
<S> <C> <C> <C>
Purchases of portfolio
securities....................... $ 35,894,408 $ 33,135,912 $ 14,168,748
Sales of portfolio
securities....................... 13,873,382 12,617,018 4,454,319
U.S. government securities excluded
above were as follows:
Purchases of U.S. government
securities....................... 5,960,693 8,680,405 10,726,571
Sales of U.S. government
securities....................... 1,161,775 1,345,525 623,050
</TABLE>
<TABLE>
<CAPTION>
ASSET
MULTI- ALLOCATION:
MANAGED DIVERSIFIED
INCOME GROWTH STOCK
------------- ------------- -------------
<S> <C> <C> <C>
Purchases of portfolio
securities....................... $ 12,987,914 $ 57,436,026 $ 40,350,278
Sales of portfolio securities...... 2,802,873 18,795,159 9,163,643
U.S. government securities excluded
above were as follows:
Purchases of U.S. government
securities....................... 7,730,456 24,929,084 --
Sales of U.S. government
securities....................... 1,450,852 18,958,186 --
</TABLE>
- ----------------
74
<PAGE>
- ----------------
SEASONS SERIES TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
DIVIDENDS
DECLARED DIVIDENDS NET NET
NET ASSET NET REALIZED & FROM NET FROM NET ASSET ASSETS
VALUE NET UNREALIZED TOTAL FROM INVEST- REALIZED VALUE END OF
PERIOD BEGINNING INVESTMENT GAIN(LOSS) ON INVESTMENT MENT GAIN ON END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1)(2) INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN(3) (000'S)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi-Managed Growth Portfolio
4/15/97-
3/31/98 $10.00 $0.18 $2.95 $3.13 $(0.08) $(0.20) $12.85 31.55% $32,481
Multi-Managed Moderate Growth Portfolio
4/15/97-
3/31/98 10.00 0.27 2.40 2.67 (0.13) (0.17) 12.37 26.86 32,622
Multi-Managed Income/Equity Portfolio
4/15/97-
3/31/98 10.00 0.41 1.68 2.09 (0.20) (0.10) 11.79 21.10 25,957
Multi-Managed Income Portfolio
4/15/97-
3/31/98 10.00 0.51 1.15 1.66 (0.27) (0.10) 11.29 16.81 18,378
Asset Allocation: Diversified Growth Portfolio
4/15/97-
3/31/98 10.00 0.23 1.76 1.99 (0.12) (0.16) 11.71 20.09 50,384
Stock Portfolio
4/15/97-
3/31/98 10.00 0.03 4.80 4.83 (0.02) (0.15) 14.66 48.59 42,085
<CAPTION>
- ----------
----------------------------------------------------
RATIO OF NET
RATIO OF INVESTMENT AVERAGE
EXPENSES TO INCOME TO COMMISSION
PERIOD AVERAGE NET AVERAGE NET PORTFOLIO PER
ENDED ASSETS(5)(6) ASSETS(5)(6) TURNOVER SHARE(4)
- ----------
----------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Managed Growth Portfolio
4/15/97-
3/31/98 1.29% 1.52% 114% $.0493
Multi-Managed Moderate Growth Portfolio
4/15/97-
3/31/98 1.21 2.36 101 .0502
Multi-Managed Income/Equity Portfolio
4/15/97-
3/31/98 1.14 3.72 46 .0474
Multi-Managed Income Portfolio
4/15/97-
3/31/98 1.06 4.69 47 .0520
Asset Allocation: Diversified Growth Portfolio
4/15/97-
3/31/98 1.21 2.06 166 .0358
Stock Portfolio
4/15/97-
3/31/98 1.21 0.24 46 .0339
</TABLE>
- ----------------------------------
(1) Calculated based upon average shares outstanding
(2) After fee waivers and expense reimbursements by the investment adviser
(3) Total return is not annualized and does not reflect expenses that apply to
the separate accounts of Anchor National Life Insurance Company. If such
expenses had been included, total return would have been lower.
(4) The average commission per share is derived by dividing the agency
commissions paid on equity securities trades by the number of shares
purchased or sold.
(5) Annualized
(6) During the period April 15, 1997 (commencement of operations) through March
31, 1998, the investment adviser waived a portion of or all fees and assumed
a portion of or all expenses for the Portfolios. If all fees and expenses
had been incurred by the Portfolios, the ratio of expenses to average net
assets and the ratio of net investment income to average net assets would
have been as follows:
<TABLE>
<CAPTION>
EXPENSES (5) NET INVESTMENT INCOME (5)
------------ -------------------------
<S> <C> <C>
Multi-Managed Growth Portfolio.................... 1.44% 1.37%
Multi-Managed Moderate Growth Portfolio........... 1.40 2.17
Multi-Managed Income/Equity Portfolio............. 1.43 3.43
Multi-Managed Income Portfolio.................... 1.50 4.25
Asset Allocation: Diversified Growth Portfolio.... 1.53 1.74
Stock Portfolio................................... 1.26 0.19
</TABLE>
See Notes to Financial Statements
----------------
75
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of Seasons Series Trust
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Multi-Managed Growth Portfolio,
Multi-Managed Moderate Growth Portfolio, Multi-Managed Income/Equity Portfolio,
Multi-Managed Income Portfolio, Asset Allocation: Diversified Growth Portfolio,
and Stock Portfolio (constituting the six portfolios of Seasons Series Trust,
hereafter referred to as the "Trust") at March 31, 1998, and the results of each
of their operations, the changes in each of their net assets and the financial
highlights for the period April 15, 1997 (commencement of operations) through
March 31, 1998, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at March
31, 1998 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
May 12, 1998
- ----------------
76
<PAGE>
- ----------------
SEASONS SERIES TRUST
SHAREHOLDERS TAX INFORMATION (UNAUDITED)
Certain tax information regarding the Seasons Series Trust is required to be
provided to the shareholders based upon each Portfolio's income and
distributions for the year ended March 31, 1998.
During the year ended March 31, 1998 the Portfolios paid the following dividends
per share along with the percentage of ordinary income dividends that qualified
for the 70% dividends received deduction for corporations:
<TABLE>
<CAPTION>
QUALIFYING %
NET FOR THE
NET SHORT-TERM 70% DIVIDENDS
TOTAL INVESTMENT CAPITAL RECEIVED
DIVIDENDS INCOME GAINS DEDUCTION
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Multi-Managed Growth Portfolio............................. $ .28 $ .08 $ .20 7.08%
Multi-Managed Moderate Growth Portfolio.................... .30 .13 .17 5.70
Multi-Managed Income/Equity Portfolio...................... .30 .20 .10 3.75
Multi-Managed Income Portfolio............................. .37 .27 .10 2.07
Asset Allocation: Diversified Growth Portfolio............. .28 .12 .16 22.96
Stock Portfolio............................................ .17 .02 .15 10.14
</TABLE>
----------------
77
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Set forth in Part B of Registrant's Statement of Additional
Information are the audited financial statements of Seasons Series
Trust with respect to Registrant's fiscal year ended March 31, 1998.
Selected per share data and ratios are set forth in Part A of the
Prospectus under the caption "Financial Highlights." No financial
statements are included in Part C. All other financial statements,
schedules and historical financial information are omitted because the
conditions requiring their filing do not exist.
(b) Exhibits:
(1) Declaration of Trust. Incorporated herein by reference to
the Registrant's Registration Statement on Form N-1A (File
No. 333-8653) filed on July 22, 1996.
(2) By-Laws. Incorporated herein by reference to the
Registrant's Registration Statement on Form N-1A (File No.
333-8653) filed on July 22, 1996.
(3) Inapplicable.
(4) Inapplicable.
(5)(a) Investment Advisory and Management Agreement. Incorporated
herein by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File No.
333-8653) filed on February 11, 1997.
(5)(b) Sub-Advisory Agreements. Incorporated herein by reference to
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A (File No. 333-8653)
filed on February 11, 1997.
(6) Inapplicable.
(7) Inapplicable.
(8) Custodian Contract. Incorporated herein by reference to
Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form N-1A (File No. 333-8653)
filed on April 1, 1997.
(9) Fund Participation Agreement between Registrant and Anchor
National Life Insurance Company, on behalf of itself and
Variable Annuity Account Five. Incorporated herein by
reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-1A (File No.
333-8653) filed on April 1, 1997.
<PAGE>
(10) Opinion and Consent of Counsel. Incorporated herein by
reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File No.
333-8653) filed on February 11, 1997.
(11) Consent of Independent Accountants. ATTACHED HEREWITH.
(12) Inapplicable.
(13) Initial Capitalization Agreement.
(14) Inapplicable.
(15) Inapplicable.
(16) Inapplicable.
(17) Powers of Attorney. Incorporated herein by reference to
Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form N-1A (File No. 333-8653)
filed on April 1, 1997.
(18) Inapplicable.
(27) Financial Data Schedules. ATTACHED HEREWITH.
Item 25. Persons Controlled By or Under Common Control With Registrant.
There are no persons controlled by or under common control with
Registrant.
Item 26. Number of Holders of Securities.
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 1
*Held by [Variable Annuity 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:
C-2
<PAGE>
(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 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
C-3
<PAGE>
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.
(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
C-4
<PAGE>
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.]
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:
C-5
<PAGE>
FILE NO.
T. Rowe Price Associates, Inc. 801-856
Janus Capital Corporation 80-13991
Wellington Management Company 801-15908
Putnam Investment Management, Inc. 801-7974
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, Suite 300,
Denver, Colorado 80296-4923. Wellington Management Company is located at
75 State Street, Boston, Massachusetts 02109. Putnam Investment
Management, Inc. is located at One Post Office Square, 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
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant certifies that it
meets all of the requirements for effectiveness of the Post-Effective Amendment
No. 2 to the Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933, as amended, and has duly caused the Post-Effective Amendment No. 2
to the 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 23rd day of July, 1998.
SEASONS SERIES TRUST
By: /s/ Peter C. Sutton
--------------------------
Peter C. Sutton
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Post-Effective Amendment No. 2 to Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated:
* Trustee, Chairman and July 23, 1998
- --------------------
James K. Hunt President
(Principal Executive Officer)
* Senior Vice President, July 23, 1998
- --------------------
Scott L. Robinson Treasurer and Controller
(Principal Financial
and Accounting Officer)
* Trustee July 23, 1998
- --------------------
Richards D. Barger
* Trustee July 23, 1998
- --------------------
Norman J. Metcalfe
* Trustee July 23, 1998
- --------------------
Allan L. Sher
* Trustee July 23, 1998
- --------------------
William M. Wardlaw
*By: /s/ Robert M. Zakem
Robert M. Zakem
Attorney-in-Fact
<PAGE>
SEASONS SERIES TRUST
EXHIBIT INDEX
Exhibit No. Name
11 Consent of Independent Accountants
27 Financial Data Schedules
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated May
12, 1998, relating to the financial statements and financial highlights of
Seasons Series Trust, which appears in such Statement of Additional Information,
and to the incorporation by reference of our report into the Prospectus which
constitutes part of this Registration Statement. We also consent to the
reference to us under the heading "General Information - Independent Accountants
and Legal Counsel" in such Statement of Additional Information and to the
references to us under the headings "Financial Highlights" and "Independent
Accountants and Legal Counsel" in such Prospectus.
/s/ PricewaterhouseCooopers
- ----------------------------
PricewaterhouseCoopers LLP (successor firm to Price Waterhouse LLP)
1177 Avenue of the Americas
New York, New York
July 15, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001003239
<NAME> SEASONS SERIES TRUST
<SERIES>
<NUMBER> 1
<NAME> MULTI-MANAGED GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-15-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 29,836,076
<INVESTMENTS-AT-VALUE> 33,243,294
<RECEIVABLES> 363,815
<ASSETS-OTHER> 27,729
<OTHER-ITEMS-ASSETS> 30,336
<TOTAL-ASSETS> 33,665,174
<PAYABLE-FOR-SECURITIES> 1,037,833
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 146,780
<TOTAL-LIABILITIES> 1,184,613
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,862,140
<SHARES-COMMON-STOCK> 2,528,174
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 103,862
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 97,251
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,417,308
<NET-ASSETS> 32,480,561
<DIVIDEND-INCOME> 67,242
<INTEREST-INCOME> 365,941
<OTHER-INCOME> 0
<EXPENSES-NET> (199,187)
<NET-INVESTMENT-INCOME> 233,996
<REALIZED-GAINS-CURRENT> 469,876
<APPREC-INCREASE-CURRENT> 3,417,308
<NET-CHANGE-FROM-OPS> 4,121,180
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (145,000)
<DISTRIBUTIONS-OF-GAINS> (360,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,051,992
<NUMBER-OF-SHARES-REDEEMED> (567,213)
<SHARES-REINVESTED> 43,395
<NET-CHANGE-IN-ASSETS> 32,480,561
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 137,424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 222,833
<AVERAGE-NET-ASSETS> 16,056,784
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 2.95
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.85
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001003239
<NAME> SEASONS SERIES TRUST
<SERIES>
<NUMBER> 2
<NAME> MULT-MANAGED MODERATE GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-15-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 30,399,415
<INVESTMENTS-AT-VALUE> 33,233,501
<RECEIVABLES> 460,663
<ASSETS-OTHER> 27,215
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,721,379
<PAYABLE-FOR-SECURITIES> 807,844
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 291,371
<TOTAL-LIABILITIES> 1,099,215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,576,002
<SHARES-COMMON-STOCK> 2,636,697
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 152,216
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 50,829
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,843,117
<NET-ASSETS> 32,622,164
<DIVIDEND-INCOME> 57,559
<INTEREST-INCOME> 510,705
<OTHER-INCOME> 0
<EXPENSES-NET> (192,714)
<NET-INVESTMENT-INCOME> 375,550
<REALIZED-GAINS-CURRENT> 380,254
<APPREC-INCREASE-CURRENT> 2,843,117
<NET-CHANGE-FROM-OPS> 3,598,921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (240,000)
<DISTRIBUTIONS-OF-GAINS> (315,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,193,790
<NUMBER-OF-SHARES-REDEEMED> (605,686)
<SHARES-REINVESTED> 48,593
<NET-CHANGE-IN-ASSETS> 32,622,164
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 135,378
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 222,641
<AVERAGE-NET-ASSETS> 16,562,061
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 2.40
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.37
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001003239
<NAME> SEASONS SERIES TRUST
<SERIES>
<NUMBER> 3
<NAME> MULTI-MANAGED INCOME/EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-15-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 24,251,249
<INVESTMENTS-AT-VALUE> 25,858,850
<RECEIVABLES> 501,169
<ASSETS-OTHER> 24,210
<OTHER-ITEMS-ASSETS> 24,536
<TOTAL-ASSETS> 26,408,765
<PAYABLE-FOR-SECURITIES> 228,876
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 223,147
<TOTAL-LIABILITIES> 452,023
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,017,960
<SHARES-COMMON-STOCK> 2,202,350
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 181,493
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 143,205
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,614,084
<NET-ASSETS> 25,956,742
<DIVIDEND-INCOME> 34,338
<INTEREST-INCOME> 576,100
<OTHER-INCOME> 0
<EXPENSES-NET> (143,190)
<NET-INVESTMENT-INCOME> 467,248
<REALIZED-GAINS-CURRENT> 305,209
<APPREC-INCREASE-CURRENT> 1,614,084
<NET-CHANGE-FROM-OPS> 2,386,541
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (295,000)
<DISTRIBUTIONS-OF-GAINS> (155,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,768,731
<NUMBER-OF-SHARES-REDEEMED> (606,962)
<SHARES-REINVESTED> 40,581
<NET-CHANGE-IN-ASSETS> 25,956,742
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 101,740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 179,780
<AVERAGE-NET-ASSETS> 13,061,458
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 1.68
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.79
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001003239
<NAME> SEASONS SERIES TRUST
<SERIES>
<NUMBER> 4
<NAME> MULTI-MANAGED INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-15-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 17,530,022
<INVESTMENTS-AT-VALUE> 18,341,572
<RECEIVABLES> 409,719
<ASSETS-OTHER> 22,115
<OTHER-ITEMS-ASSETS> 5,957
<TOTAL-ASSETS> 18,779,363
<PAYABLE-FOR-SECURITIES> 198,454
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203,126
<TOTAL-LIABILITIES> 401,580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,301,664
<SHARES-COMMON-STOCK> 1,627,196
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 176,503
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 83,325
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 816,291
<NET-ASSETS> 18,377,783
<DIVIDEND-INCOME> 16,104
<INTEREST-INCOME> 555,748
<OTHER-INCOME> 0
<EXPENSES-NET> (105,483)
<NET-INVESTMENT-INCOME> 466,369
<REALIZED-GAINS-CURRENT> 216,218
<APPREC-INCREASE-CURRENT> 816,291
<NET-CHANGE-FROM-OPS> 1,498,878
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (310,000)
<DISTRIBUTIONS-OF-GAINS> (115,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,243,277
<NUMBER-OF-SHARES-REDEEMED> (655,273)
<SHARES-REINVESTED> 39,192
<NET-CHANGE-IN-ASSETS> 18,377,783
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76,624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 148,973
<AVERAGE-NET-ASSETS> 10,348,147
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 1.15
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001003239
<NAME> SEASONS SERIES TRUST
<SERIES>
<NUMBER> 5
<NAME> ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-15-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 47,731,349
<INVESTMENTS-AT-VALUE> 51,191,522
<RECEIVABLES> 1,164,466
<ASSETS-OTHER> 29,490
<OTHER-ITEMS-ASSETS> 106,892
<TOTAL-ASSETS> 52,492,370
<PAYABLE-FOR-SECURITIES> 1,860,383
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247,583
<TOTAL-LIABILITIES> 2,107,966
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,818,807
<SHARES-COMMON-STOCK> 4,301,676
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 169,315
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 80,064
<ACCUM-APPREC-OR-DEPREC> 3,476,346
<NET-ASSETS> 50,384,404
<DIVIDEND-INCOME> 347,227
<INTEREST-INCOME> 453,579
<OTHER-INCOME> 0
<EXPENSES-NET> (296,497)
<NET-INVESTMENT-INCOME> 504,309
<REALIZED-GAINS-CURRENT> 427,701
<APPREC-INCREASE-CURRENT> 3,476,346
<NET-CHANGE-FROM-OPS> 4,408,356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (350,000)
<DISTRIBUTIONS-OF-GAINS> (495,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,347,715
<NUMBER-OF-SHARES-REDEEMED> (1,123,496)
<SHARES-REINVESTED> 77,457
<NET-CHANGE-IN-ASSETS> 50,384,404
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 208,284
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 374,221
<AVERAGE-NET-ASSETS> 25,481,322
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 1.76
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> (0.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.71
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001003239
<NAME> SEASONS SERIES TRUST
<SERIES>
<NUMBER> 6
<NAME> STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-15-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 34,782,284
<INVESTMENTS-AT-VALUE> 42,017,650
<RECEIVABLES> 256,804
<ASSETS-OTHER> 13,278
<OTHER-ITEMS-ASSETS> 4,662
<TOTAL-ASSETS> 42,292,394
<PAYABLE-FOR-SECURITIES> 99,238
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108,466
<TOTAL-LIABILITIES> 207,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,890,379
<SHARES-COMMON-STOCK> 2,871,299
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7,952
<ACCUMULATED-NET-GAINS> 967,017
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,235,246
<NET-ASSETS> 42,084,690
<DIVIDEND-INCOME> 220,527
<INTEREST-INCOME> 84,456
<OTHER-INCOME> 0
<EXPENSES-NET> (253,712)
<NET-INVESTMENT-INCOME> 51,271
<REALIZED-GAINS-CURRENT> 1,290,553
<APPREC-INCREASE-CURRENT> 7,235,246
<NET-CHANGE-FROM-OPS> 8,577,070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (50,000)
<DISTRIBUTIONS-OF-GAINS> (335,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,890,293
<NUMBER-OF-SHARES-REDEEMED> (1,049,317)
<SHARES-REINVESTED> 30,323
<NET-CHANGE-IN-ASSETS> 42,084,690
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 178,227
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 264,037
<AVERAGE-NET-ASSETS> 21,804,268
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 4.80
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> (0.15)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.66
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
