<PAGE>
As filed with the Securities and Exchange Commission on July 15, 1999
Securities Act File No. 333-8653
Investment Company File Act No. 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. 6 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 8 /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. Swidler Berlin Shereff Friedman, LLP
1 SunAmerica Center 919 Third Avenue
Los Angeles, CA 90067-6022 New York, New York 10022
Approximate date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes
effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
/X/ immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on (date) pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / on (date) pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE>
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PROSPECTUS
JULY 15, 1999
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[LOGO]
SEASONS SERIES TRUST
- MULTI-MANAGED GROWTH PORTFOLIO
- MULTI-MANAGED MODERATE GROWTH PORTFOLIO
- MULTI-MANAGED INCOME/EQUITY PORTFOLIO
- MULTI-MANAGED INCOME PORTFOLIO
- ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
- STOCK PORTFOLIO
- LARGE CAP GROWTH PORTFOLIO
- LARGE CAP COMPOSITE PORTFOLIO
- LARGE CAP VALUE PORTFOLIO
- MID CAP GROWTH PORTFOLIO
- MID CAP VALUE PORTFOLIO
- SMALL CAP PORTFOLIO
- INTERNATIONAL EQUITY PORTFOLIO
- DIVERSIFIED FIXED INCOME PORTFOLIO
- CASH MANAGEMENT PORTFOLIO
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
TRUST HIGHLIGHTS.................................. 3
Q&A....................................... 3
MORE INFORMATION ABOUT THE PORTFOLIOS............. 12
Investment Strategies..................... 12
GLOSSARY.......................................... 20
Investment Terminology.................... 20
About the Indices......................... 23
Risk Terminology.......................... 24
MANAGEMENT........................................ 26
Investment Adviser and Manager............ 26
Information about the Subadvisers......... 28
Portfolio Management...................... 29
Custodian, Transfer and Dividend Paying
Agent.................................. 39
ACCOUNT INFORMATION............................... 40
Transaction Policies...................... 40
Dividend Policies and Taxes............... 41
OTHER INFORMATION................................. 41
Year 2000................................. 41
FINANCIAL HIGHLIGHTS.............................. 42
FOR MORE INFORMATION.............................. 44
</TABLE>
2
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MANAGED COMPONENTS -- the four distinct, actively managed investment components
in which all of the assets of the Multi-Managed Seasons Portfolios are invested.
The percentage each Multi-Managed Seasons Portfolio allocates to a Managed
Component differs based upon the Portfolio's investment objective.
CAPITAL APPRECIATION/GROWTH is an increase in the market value of securities
held.
INCOME is interest payments from bonds or dividends from stocks.
YIELD is the annual dollar income received on an investment expressed as a
percentage of the current or average price.
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TRUST HIGHLIGHTS
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The following questions and answers are designed to provide you with information
about Seasons Series Trust (the "Trust"), and to give you an overview of the
Trust's fifteen separate investment series ("Portfolios") and their investment
goals and principal strategies. More complete investment information is provided
in the chart, under "More Information About the Portfolios," which is on page
12, and the glossary that follows on page 20.
Six of the Portfolios, which we call the "Seasons Portfolios," are available
through the Seasons Variable Annuity Contract. The other nine Portfolios, which
we call the "Seasons Select Portfolios," are available in addition to the
Seasons Portfolios, through the Seasons Select Variable Annuity Contract.
Q: WHAT ARE THE PORTFOLIOS' INVESTMENT GOALS AND
STRATEGIES?
A: Each Portfolio operates as a separate mutual fund
and has its own investment goal and a strategy for
pursuing it. A Portfolio's investment goal may be
changed by the Board of Trustees without
shareholder approval, but you will be notified of
any change. There can be no assurance that any
Portfolio's investment goal will be met or that the
net return on an investment in a Portfolio will
exceed what could have been obtained through other
investment or savings vehicles.
<TABLE>
<CAPTION>
<S> <C> <C>
SEASONS PORTFOLIOS
PORTFOLIO INVESTMENT GOAL STRATEGY
MULTI-MANAGED GROWTH PORTFOLIO long-term growth of capital asset allocation through Managed
Components
MULTI-MANAGED MODERATE GROWTH PORTFOLIO long-term growth of capital, with asset allocation through Managed
capital preservation as a secondary Components
objective
MULTI-MANAGED INCOME/EQUITY PORTFOLIO conservation of principal while asset allocation through Managed
maintaining some potential for long-term Components
growth of capital
MULTI-MANAGED INCOME PORTFOLIO capital preservation asset allocation through Managed
Components
ASSET ALLOCATION: DIVERSIFIED GROWTH capital appreciation investment primarily through a strategic
PORTFOLIO allocation of approximately 80% (with a
range of 65-95%) of its assets to equity
securities and approximately 20% (with a
range of 5-35%) of its assets to fixed
income securities
STOCK PORTFOLIO long-term capital appreciation, with a investment primarily in the common
secondary objective of increasing stocks of a diversified group of
dividend income well-established growth companies
</TABLE>
3
<PAGE>
Each of the Seasons MULTI-MANAGED GROWTH, MULTI-MANAGED MODERATE GROWTH,
MULTI-MANAGED INCOME/EQUITY and MULTI-MANAGED INCOME PORTFOLIOS (referred to
hereinafter as the "Multi-Managed Seasons Portfolios") allocates all of its
assets among three or four distinct MANAGED COMPONENTS, each managed by a
separate Manager and each with its own investment strategy. The three Managers
of the Multi-Managed Seasons Portfolios are SunAmerica Asset Management Corp.
("SunAmerica"), Janus Capital Corporation ("Janus") and Wellington Management
Company, LLP ("WMC"). None of the Multi-Managed Seasons Portfolios contains a
passively managed component. The four current Managed Components are
SUNAMERICA/AGGRESSIVE GROWTH, JANUS/GROWTH, SUNAMERICA/BALANCED and WMC/FIXED
INCOME. The Managed Components each invest to varying degrees, according to
their investment strategy in a diverse portfolio of securities including, 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/or
cash or cash equivalents. The assets of each Managed Component that comprises a
particular Multi-Managed Seasons Portfolio belong to that Portfolio. The term
"Manager" as used herein shall mean either SunAmerica, the Investment Adviser to
the Trust, or the other registered investment advisers that serve as Subadvisers
to the Trust, as the case may be.
Although each Multi-Managed Seasons Portfolio has a distinct investment
objective and allocates its assets 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 Seasons Portfolio. However, the equity/ debt
weightings of the SUNAMERICA/BALANCED component under normal market conditions
will vary depending on the objective of the Multi-Managed Seasons Portfolio. The
following chart shows the allocation of the assets of each Multi-Managed Seasons
Portfolio among Managed Components.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUNAMERICA/ JANUS/
AGGRESSIVE GROWTH GROWTH SUNAMERICA/ WMC/FIXED INCOME
PORTFOLIO COMPONENT COMPONENT BALANCED COMPONENT COMPONENT
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>
Differences in investment returns among the Managed Components may cause the
actual percentages to vary over the course of a calendar quarter from the
targets listed in the chart. Accordingly, the assets of each Multi-Managed
Seasons Portfolio will be reallocated or "rebalanced" among the Managed
Components on at least a quarterly basis to restore the target allocations for
such Portfolio.
4
<PAGE>
A "GROWTH" PHILOSOPHY -- that of investing in securities believed to offer the
potential for capital appreciation -- focuses on securities of companies that
are considered to have a historical record of above-average growth rate,
significant growth potential, above-average earnings growth or value, the
ability to sustain earnings growth, or that offer proven or unusual products or
services, or operate in industries experiencing increasing demand.
A "VALUE" PHILOSOPHY -- that of investing in securities that are believed to be
undervalued in the market -- often reflects a contrarian approach in that the
potential for superior relative performance is believed to be highest when
fundamentally solid companies are out of favor. The selection criteria is
usually calculated to identify stocks of companies with solid financial strength
and generous dividend yields that have low price-earnings ratios and have
generally been overlooked by the market, or companies undervalued within an
industry or market capitalization category.
MARKET CAPITALIZATION represents the total market value of the outstanding
securities of a corporation.
LARGE CAP COMPANIES are generally those with market capitalizations of over $5
billion, although there may be some overlap among capitalization categories.
MID CAP COMPANIES are generally those with market capitalizations ranging from
$1 billion to $5 billion, although there may be some overlap among
capitalization categories.
SMALL CAP COMPANIES are generally those with market capitalizations of $1
billion or less, although there may be some overlap among capitalization
categories.
<TABLE>
<CAPTION>
<S> <C> <C>
SEASONS SELECT PORTFOLIOS
PORTFOLIO INVESTMENT GOAL STRATEGY
LARGE CAP GROWTH PORTFOLIO long-term growth of capital investment primarily in equity
securities of large companies (at least
65% of total assets) selected through a
growth strategy
LARGE CAP COMPOSITE PORTFOLIO long-term growth of capital and growth investment primarily in equity
of dividend income securities of large companies (at least
65% of total assets) that offer the
potential for long-term growth of
capital or dividends
LARGE CAP VALUE PORTFOLIO long-term growth of capital investment primarily in equity
securities of large companies (at least
65% of total assets) selected through a
value strategy
MID CAP GROWTH PORTFOLIO long-term growth of capital investment primarily in equity
securities of medium sized companies (at
least 65% of total assets) selected
through a growth strategy
MID CAP VALUE PORTFOLIO long-term growth of capital investment primarily in equity
securities of medium sized companies (at
least 65% of total assets) selected
through a value strategy
SMALL CAP PORTFOLIO long-term growth of capital investment primarily in equity
securities of small companies (at least
65% of total assets)
INTERNATIONAL EQUITY PORTFOLIO long-term growth of capital investment primarily in equity
securities of issuers in at least 3
countries other than the U.S.
DIVERSIFIED FIXED INCOME PORTFOLIO relatively high current income and investment primarily in fixed income
secondarily capital appreciation securities, including U.S. and foreign
government securities, mortgaged-backed
securities, investment grade debt
securities, and high yield/high risk
bonds ("junk bonds")
CASH MANAGEMENT PORTFOLIO high current yield while preserving investment in a diversified selection of
capital money market instruments
</TABLE>
5
<PAGE>
Each Seasons Select Portfolio except the CASH MANAGEMENT PORTFOLIO is managed by
several separate Managers, and we call them the "Multi-Managed Seasons Select
Portfolios." Each Multi-Managed Seasons Select Portfolio offers you access to at
least three different professional Managers, one of which may be SunAmerica, and
each of which advises a separate portion of the Portfolio. To balance the risks
of an actively managed portfolio, each Multi-Managed Seasons Select Portfolio
includes a passively-managed index component, currently managed by Bankers Trust
Company, that seeks to replicate a target index or a subset of an index. The
index component will not sell stocks in its portfolio or buy different stocks
over the course of a year other than in conjunction with changes in its index,
even if there are adverse developments concerning a particular stock, company or
industry.
SunAmerica will initially allocate the assets of each Multi-Managed Seasons
Select Portfolio among the Managers for a Portfolio in a manner designed to
maximize investment efficiency. SunAmerica will then allocate new cash from
share purchases over redemption requests equally among the Managers, unless
SunAmerica determines, subject to the review of the Trustees, that a different
allocation of assets would be in the best interests of a Portfolio and its
shareholders. SunAmerica intends, on a quarterly basis, to review the asset
allocation in each Multi-Managed Seasons Select Portfolio to determine the
extent to which the portion of assets managed by a Manager differs from that
portion managed by any other Manager to the Portfolio. If SunAmerica determines
that the difference is significant, SunAmerica will then re-allocate cash flows
among the three Managers, differently from the manner described above, in an
effort to effect a re-balancing of the Portfolio's asset allocation. In general,
SunAmerica will not rebalance or reallocate the existing assets of a
Multi-Managed Seasons Select Portfolio among Managers. However, SunAmerica
reserves the right, subject to the review of the Board, to reallocate assets
from one Manager to another when it would be in the best interests of a
Portfolio and its shareholders to do so. In some instances, where a reallocation
results in any rebalancing of the Portfolio from a previous allocation, the
effect of the reallocation may be to shift assets from a better performing
Manager to a portion of the Portfolio with a relatively lower total return.
6
<PAGE>
Q: WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS?
A: The following section describes the principal risks of each Portfolio, and
the charts beginning on page 13 describes various additional risks.
RISKS OF INVESTING EQUITY SECURITIES
The MULTI-MANAGED GROWTH, MULTI-MANAGED MODERATE GROWTH, ASSET ALLOCATION:
DIVERSIFIED GROWTH, STOCK, LARGE CAP GROWTH, LARGE CAP COMPOSITE, LARGE CAP
VALUE, MID CAP GROWTH, MID CAP VALUE, SMALL CAP and INTERNATIONAL EQUITY
PORTFOLIOS invest primarily in equity securities. In addition, the
MULTI-MANAGED INCOME/EQUITY and MULTI-MANAGED INCOME PORTFOLIOS invest
significantly in equities. As with any equity fund, the value of your
investment in any of these Portfolios may fluctuate in response to stock
market movements. In addition, individual stocks selected for any of these
Portfolios may underperform the market generally. Growth stocks are
historically volatile, which will particularly affect the MULTI-MANAGED
GROWTH, MULTI-MANAGED MODERATE GROWTH, ASSET ALLOCATION: DIVERSIFIED GROWTH,
STOCK, LARGE CAP GROWTH, LARGE CAP COMPOSITE, MID CAP GROWTH and SMALL CAP
PORTFOLIOS. You should be aware that the performance of different types of
equity stocks may rise or decline under varying market conditions -- for
example, "value" stocks may perform well under circumstances in which
"growth" stocks in general have fallen, and vice versa.
RISKS OF INVESTING IN BONDS
The MULTI-MANAGED INCOME/EQUITY, MULTI-MANAGED INCOME and DIVERSIFIED FIXED
INCOME PORTFOLIOS invest primarily in bonds. In addition, the MULTI-MANAGED
GROWTH, MULTI-MANAGED MODERATE GROWTH and ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIOS each invests significantly in bonds. As a result, as with
any bond fund, the value of your investment in these Portfolios may go up or
down in response to changes in interest rates or defaults (or even the
potential for future default) by bond issuers. To the extent a Portfolio is
invested in bonds, movements in the bond market generally may affect its
performance.
RISKS OF INVESTING IN JUNK BONDS
Each of the Portfolios except the STOCK, LARGE CAP GROWTH, MID CAP GROWTH
and CASH MANAGEMENT PORTFOLIOS may invest in varying degrees in high
yield/high risk securities, also known as "junk bonds," which are considered
speculative. While the Managers try to diversify a Portfolio and to engage
in a credit analysis of each junk bond issuer in which a Portfolio invests,
junk bonds carry a substantial risk of default or changes in the issuer's
creditworthiness, or they may already be in default. A junk bond's market
price may fluctuate more than higher-quality securities and may decline
significantly. In addition, it may be more difficult for a Portfolio to
dispose of junk bonds or to determine their value. Junk bonds may contain
redemption or call provisions that, if exercised during a period of
declining interest rates, may force a Portfolio to replace the security with
a lower yielding security. If this occurs, it will result in a decreased
return for you.
RISKS OF INVESTING IN MONEY MARKET SECURITIES
While an investment in the CASH MANAGEMENT PORTFOLIO should present the
least market risk of any of the Portfolios, since it invests only in
high-quality short-term debt obligations, you should be aware that an
investment in the CASH MANAGEMENT PORTFOLIO is subject to the risks that the
value of its investments may be affected by changes in interest rates. The
CASH MANAGEMENT PORTFOLIO does not seek to maintain a stable net asset value
of $1.00.
7
<PAGE>
RISKS OF INVESTING INTERNATIONALLY
All of the Portfolios except the CASH MANAGEMENT PORTFOLIO may invest in
foreign securities. These securities may be denominated in currencies other
than U.S. dollars. Foreign investing presents special risks, particularly in
certain emerging market countries. While investing internationally may
reduce your risk by increasing the diversification of your investment, the
value of your investment may be affected by fluctuating currency values,
changing local and regional economic, political and social conditions, and
greater market volatility. In addition, foreign securities may not be as
liquid as domestic securities. This will particularly affect the
INTERNATIONAL EQUITY PORTFOLIO.
RISKS OF INVESTING IN SMALLER COMPANIES
All Portfolios except the DIVERSIFIED FIXED INCOME and CASH MANAGEMENT
PORTFOLIOS may invest in smaller companies. Stocks of smaller companies may
be more volatile than, and not as liquid as, those of larger companies. This
will particularly affect the MULTI-MANAGED GROWTH, MULTI-MANAGED MODERATE
GROWTH, ASSET ALLOCATION: DIVERSIFIED GROWTH and SMALL-CAP PORTFOLIOS.
RISKS OF INVESTING IN "NON-DIVERSIFIED" PORTFOLIOS
Each Multi-Managed Seasons and Multi-Managed Seasons Select Portfolio
(except for the DIVERSIFIED FIXED INCOME PORTFOLIO) is "non-diversified,"
which means that each can invest a larger portion of its assets in the stock
of a single company than can some other mutual funds. By concentrating in a
smaller number of stocks, a Portfolio's risk is increased because the effect
of each stock on the Portfolio's performance is greater.
ADDITIONAL PRINCIPAL RISKS
Finally, shares of Portfolios are not bank deposits and are not guaranteed
or insured by any bank, government entity or the Federal Deposit Insurance
Corporation. As with any mutual fund, there is no guarantee that a Portfolio
will be able to achieve its investment goals. If the value of the assets of
a Portfolio goes down, you could lose money.
Q: HOW HAVE THE SEASONS PORTFOLIOS PERFORMED HISTORICALLY?
A: The following Risk/Return Bar Charts and Tables provide some indication of
the risks of investing in the Seasons Portfolios by comparing the Seasons
Portfolios' performance with those of an appropriate market index. Fees and
expenses incurred at the contract level are not reflected in the bar chart.
If these amounts were reflected, returns would be less than those shown. Of
course, past performance is not necessarily an indication of how a Seasons
Portfolio will perform in the future.
8
<PAGE>
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MULTI-MANAGED GROWTH PORTFOLIO
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 31.45%
</TABLE>
During the one year period shown in the bar chart, the highest return for a
quarter was 21.27% (quarter ended 12/31/98) and the lowest return for a quarter
was -6.23% (quarter ended 09/30/98). For the most recent calendar quarter ended
6/30/99 the return was 3.95%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR PAST ONE RETURN SINCE
ENDED DECEMBER 31, 1998) YEAR INCEPTION***
<S> <C> <C>
- -----------------------------------------------------------------------------------
Multi-Managed Growth Portfolio 31.45% 30.16%
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Blended Benchmark Index* 16.59% 23.98%
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S&P 500-Registered Trademark-** 28.58% 36.28%
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</TABLE>
* The Blended Benchmark Index consists of 51% Standard & Poor's
500-Registered Trademark- Composite Stock Price Index (S&P
500-Registered Trademark-), 27% Lehman Brothers Aggregate Index, 20% Russell
2000-Registered Trademark- Index and 2% Treasury Bills. The Lehman Brothers
Aggregate Index provides a broad view of the performance of the U.S. fixed
income market. The Russell 2000-Registered Trademark- Index comprises the
smallest 2000 companies in the Russell 3000-Registered Trademark- Index and
is widely recognized as representative of small-cap growth stocks. Treasury
Bills are short-term securities with maturities of one year or less issued
by the U.S. government.
** The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
(S&P 500-Registered Trademark-) is an unmanaged, weighted index of 500 large
company stocks that is widely recognized as representative of the
performance of the U.S. stock market.
*** Inception date for the Portfolio is April 15, 1997.
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MULTI-MANAGED MODERATE GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 25.07%
</TABLE>
During the one year period shown in the bar chart, the highest return for a
quarter was 16.24% (quarter ended 12/31/98) and the lowest return for a quarter
was -4.20% (quarter ended 09/30/98). For the most recent calendar quarter ended
6/30/99 the return was 2.84%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1998) ONE YEAR INCEPTION***
<S> <C> <C>
- -----------------------------------------------------------------------------------
Multi-Managed Moderate Growth Portfolio 25.07% 25.23%
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Blended Benchmark Index* 14.43% 20.83%
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S&P 500-Registered Trademark-** 28.58% 36.28%
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</TABLE>
* The Blended Benchmark Index consists of 51% Standard & Poor's
500-Registered Trademark- Composite Stock Price Index (S&P
500-Registered Trademark-), 27% Lehman Brothers Aggregate Index, 20% Russell
2000-Registered Trademark- Index and 2% Treasury Bills. The Lehman Brothers
Aggregate Index provides a broad view of the performance of the U.S. fixed
income market. The Russell 2000-Registered Trademark- Index comprises the
smallest 2000 companies in the Russell 3000-Registered Trademark- Index and
is widely recognized as representative of small-cap growth stocks. Treasury
Bills are short-term securities with maturities of one year or less issued
by the U.S. government.
** The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
(S&P 500-Registered Trademark-) is an unmanaged, weighted index of 500 large
company stocks that is widely recognized as representative of the
performance of the U.S. stock market.
*** Inception date for the Portfolio is April 15, 1997.
9
<PAGE>
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MULTI-MANAGED INCOME/EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 19.13%
</TABLE>
During the one year period shown in the bar chart, the highest return for a
quarter was 7.95% (quarter ended 12/31/98) and the lowest return for a quarter
was 0.49% (quarter ended 09/30/98). For the most recent calendar quarter ended
6/30/99 the return was 1.05%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1998) ONE YEAR INCEPTION****
<S> <C> <C>
- -----------------------------------------------------------------------------------
Multi-Managed Income/Equity Portfolio 19.13% 19.64%
- -----------------------------------------------------------------------------------
Blended Benchmark Index* 15.51% 18.79%
- -----------------------------------------------------------------------------------
S&P 500-Registered Trademark-** 28.58% 36.28%
- -----------------------------------------------------------------------------------
Lehman Brothers Aggregate Index*** 8.69% 10.87%
- -----------------------------------------------------------------------------------
</TABLE>
* The Blended Benchmark Index consists of 51% Standard & Poor's
500-Registered Trademark- Composite Stock Price Index (S&P
500-Registered Trademark-), 27% Lehman Brothers Aggregate Index, 20%
Russell 2000-Registered Trademark- Index and 2% Treasury Bills. The Lehman
Brothers Aggregate Index provides a broad view of the performance of the
U.S. fixed income market. The Russell 2000-Registered Trademark- Index
comprises the smallest 2000 companies in the Russell
3000-Registered Trademark- Index and is widely recognized as representative
of small-cap growth stocks. Treasury Bills are short-term securities with
maturities of one year or less issued by the U.S. government.
** The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
(S&P 500-Registered Trademark-) is an unmanaged, weighted index of 500
large company stocks that is widely recognized as representative of the
performance of the U.S. stock market.
*** The Lehman Brothers Aggregate Index provides a broad view of the
performance of the U.S. fixed income market.
**** Inception date for the Portfolio is April 15, 1997.
- --------------------------------------------------------------------------------
MULTI-MANAGED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 13.58%
</TABLE>
During the one year period shown in the bar chart, the highest return for a
quarter was 4.10% (quarter ended 12/31/98) and the lowest return for a quarter
was 2.07% (quarter ended 09/30/98). For the most recent calendar quarter ended
6/30/99 the return was -0.17%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1998) ONE YEAR INCEPTION***
<S> <C> <C>
- -----------------------------------------------------------------------------------
Multi-Managed Income Portfolio 13.58% 15.31%
- -----------------------------------------------------------------------------------
Blended Benchmark Index* 12.24% 14.96%
- -----------------------------------------------------------------------------------
Lehman Brothers Aggregate Index** 8.69% 10.87%
- -----------------------------------------------------------------------------------
</TABLE>
* The Blended Benchmark Index consists of 51% Standard & Poor's
500-Registered Trademark- Composite Stock Price Index (S&P
500-Registered Trademark-), 27% Lehman Brothers Aggregate Index, 20% Russell
2000-Registered Trademark- Index and 2% Treasury Bills. The Lehman Brothers
Aggregate Index provides a broad view of the performance of the U.S. fixed
income market. The Russell 2000-Registered Trademark- Index comprises the
smallest 2000 companies in the Russell 3000-Registered Trademark- Index and
is widely recognized as representative of small-cap growth stocks. Treasury
Bills are short-term securities with maturities of one year or less issued
by the U.S. government.
** The Lehman Brothers Aggregate Index provides a broad view of the performance
of the U.S. fixed income market.
*** Inception date for the Portfolio is April 15, 1997.
10
<PAGE>
- --------------------------------------------------------------------------------
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 13.43%
</TABLE>
During the one year period shown in the bar chart, the highest return for a
quarter was 15.54% (quarter ended 12/31/98) and the lowest return for a quarter
was -9.81% (quarter ended 09/30/98). For the most recent calendar quarter ended
6/30/99 the return was 4.28%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1998) ONE YEAR INCEPTION***
<S> <C> <C>
- -----------------------------------------------------------------------------------
Asset Allocation: Diversified Growth Portfolio 13.43% 15.24%
- -----------------------------------------------------------------------------------
Blended Benchmark Index* 23.30% 26.46%
- -----------------------------------------------------------------------------------
S&P 500-Registered Trademark-** 28.58% 36.28%
- -----------------------------------------------------------------------------------
</TABLE>
* The Blended Benchmark Index consists of 51% Standard & Poor's
500-Registered Trademark- Composite Stock Price Index (S&P
500-Registered Trademark-), 27% Lehman Brothers Aggregate Index, 20% Russell
2000-Registered Trademark- Index and 2% Treasury Bills. The Lehman Brothers
Aggregate Index provides a broad view of the performance of the U.S. fixed
income market. The Russell 2000-Registered Trademark- Index comprises the
smallest 2000 companies in the Russell 3000-Registered Trademark- Index and
is widely recognized as representative of small-cap growth stocks. Treasury
Bills are short-term securities with maturities of one year or less issued
by the U.S. government.
** The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
(S&P 500-Registered Trademark-) is an unmanaged, weighted index of 500 large
company stocks that is widely recognized as representative of the
performance of the U.S. stock market.
*** Inception date for the Portfolio is April 15, 1997.
- --------------------------------------------------------------------------------
STOCK PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 27.24%
</TABLE>
During the one year period shown in the bar chart, the highest return for a
quarter was 22.80% (quarter ended 12/31/98) and the lowest return for a quarter
was -11.25% (quarter ended 09/30/98). For the most recent calendar quarter ended
6/30/99 the return was 5.80%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1998) ONE YEAR INCEPTION**
<S> <C> <C>
- -----------------------------------------------------------------------------------
Stock Portfolio 27.24% 33.52%
- -----------------------------------------------------------------------------------
S&P 500-Registered Trademark-* 28.58% 36.28%
- -----------------------------------------------------------------------------------
</TABLE>
* The Standard & Poor's 500-Registered Trademark- Composite Stock Price Index
(S&P 500-Registered Trademark-) is an unmanaged, weighted index of 500 large
company stocks that is widely recognized as representative of the
performance of the U.S. stock market.
** Inception date for the Portfolio is April 15, 1997.
11
<PAGE>
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT THE PORTFOLIOS
- --------------------------------------------------------------------------------
INVESTMENT STRATEGIES
The charts provided below summarize information about the investment strategies
that each Managed Component and Portfolio uses. We have included a glossary to
define the investment and risk terminology that we have used in the charts and
throughout this Prospectus. You should consider your ability to assume the risks
involved before investing in a Portfolio through the Seasons or Seasons Select
Variable Annuity Contracts.
The Seasons and Seasons Select Variable Annuity Contracts offer four variable
investment "Strategies." You should be aware that if you select a Strategy you
will not invest directly in one of the Portfolios. Instead, each Strategy
invests in three of the six Seasons Portfolios. The allocation of assets among
the Portfolios will vary depending on the objective of the Strategy.
SEASONS PORTFOLIOS
Four of the Seasons Portfolios are Multi-Managed Seasons Portfolios, which means
that they pursue their investment goals by allocating their assets among three
or four Managed Components, as indicated in the chart on page 4. If you invest
in one of the Multi-Managed Seasons Portfolios, it's important for you to
understand how the chart provided below applies specifically to your investment.
To summarize the allocation strategy, because the MULTI-MANAGED GROWTH and
MULTI-MANAGED MODERATE GROWTH PORTFOLIOS seek long-term growth of capital, each
therefore allocates a relatively larger percentage of its assets to the
SUNAMERICA/AGGRESSIVE GROWTH and JANUS/GROWTH components than do the other two
Multi-Managed Seasons Portfolios. In contrast, the MULTI-MANAGED INCOME/EQUITY
and 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. 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.
You should carefully review the investment objectives and policies of each
Multi-Managed Seasons Portfolios to understand how each Managed Component
applies to an investment in any of the Multi-Managed Season Portfolios. For
example, if you invest in a Strategy that invests heavily in the MULTI-MANAGED
INCOME PORTFOLIO, you should be aware that this Portfolio distributes its assets
among the JANUS/GROWTH component, the SUNAMERICA/BALANCED component and the
WMC/FIXED INCOME component in a ratio of 8%/17%/75%. When reviewing the charts
provided below, please keep in mind how the investment strategies and risks of
each of the Managed Components applies to your investment. You should also bear
in mind when reviewing the chart that the MULTI-MANAGED INCOME PORTFOLIO invests
three quarters of its assets in the WMC/FIXED INCOME component and pay close
attention to that component's investment strategies and risks.
12
<PAGE>
SEASONS PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SUNAMERICA/ SUNAMERICA/
AGGRESSIVE GROWTH JANUS/GROWTH BALANCED
COMPONENT COMPONENT COMPONENT
What are the Portfolio's equity securities of common stocks selected equity securities of mid-
or Managed Component's small, lesser known or for their growth to large-cap companies
principal investments new growth companies or potential believed to be
(under normal market industries, such as undervalued, and
conditions)? technology, long-term bonds and other
telecommunications, media debt securities; neutral
and healthcare equity/debt weightings of
70%/30% for Multi-Managed
Growth and Moderate
Growth Portfolios;
50%/50% for Multi-Managed
Income/ Equity and Income
Portfolios (actual
weighting may differ)
What are the Portfolio's - stock market volatility - stock market volatility - stock and bond market
or Managed Component's - securities selection - securities selection volatility
principal risks? - growth stocks - growth stocks - securities selection
- small and mid-market - junk bonds - interest rate
capitalization - small and mid- market fluctuations
- non-diversification capitalization - non-diversification
- non-diversification
What other investment
strategies can the
Portfolio or Managed
Component use?
- - Large company stocks Yes See principal investments See principal investments
section above section above
- - Medium-sized company See principal investments See principal investments See principal investments
stocks section above section above section above
<CAPTION>
WMC/FIXED ASSET ALLOCATION:
INCOME DIVERSIFIED
COMPONENT GROWTH PORTFOLIO STOCK PORTFOLIO
What are the Portfolio's U.S. and foreign fixed strategic allocation of common stock of well-
or Managed Component's income securities of approximately 80% (with a established growth
principal investments varying maturities and range of 65-95%) of its companies (at least 65%
(under normal market risk/return assets to equity of total assets)
conditions)? characteristics (at least securities and
80% investment grade approximately 20% (with a
securities and at least range of 5-35%) of its
85% U.S. dollar assets to fixed income
denominated) securities
What are the Portfolio's - bond market volatility - stock market volatility - stock market volatility
or Managed Component's - securities selection - securities selection - securities selection
principal risks? - interest rate - growth stocks - growth stocks
fluctuations - foreign exposure - foreign exposure
- non-diversification - small and mid- market
capitalization
What other investment
strategies can the
Portfolio or Managed
Component use?
- - Large company stocks No See principal investments See principal investments
section above section above
- - Medium-sized company No See principal investments Yes
stocks section above
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SUNAMERICA/ SUNAMERICA/
AGGRESSIVE GROWTH JANUS/GROWTH BALANCED
COMPONENT COMPONENT COMPONENT
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio or Managed
Component use?
- - Small company stocks See principal investments See principal investments Yes (up to 20%)
section above section above
- - Active Trading Yes Yes No
What other investments
can the Portfolio or
Managed Components use?
- - Types of fixed income
securities:
Investment grade Yes Yes Yes
U.S. government Yes Yes Yes
securities
Asset-backed and Yes Yes Yes
mortgage-backed
securities
Junk bonds No Yes (up to 35%) No
- - Short-term money market Yes (up to 25%) Yes (up to 25%) Yes (up to 25%)
instruments
- - Temporary defensive Yes (up to 100%) Yes (up to 100%) Yes (up to 100%)
investments
- - Foreign securities Yes Yes Yes (up to 25%)
<CAPTION>
WMC/FIXED ASSET ALLOCATION:
INCOME DIVERSIFIED
COMPONENT GROWTH PORTFOLIO STOCK PORTFOLIO
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio or Managed
Component use?
- - Small company stocks No See principal investments Yes
section above
- - Active Trading Yes Yes No
What other investments
can the Portfolio or
Managed Components use?
- - Types of fixed income
securities:
Investment grade Yes Yes Yes
U.S. government Yes Yes Yes
securities
Asset-backed and Yes Yes Yes
mortgage-backed
securities
Junk bonds Yes (up to 20%) Yes (up to 20%) No
- - Short-term money market Yes (up to 25%) Yes (up to 25%) Yes (up to 25%)
instruments
- - Temporary defensive Yes (up to 100%) Yes (up to 100%) Yes (up to 100%)
investments
- - Foreign securities Yes (up to 15% Yes (up to 60%) Yes (up to 30%)
denominated in foreign
currencies; up to 100%
denominated in U.S.
dollars)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SUNAMERICA/ SUNAMERICA/
AGGRESSIVE GROWTH JANUS/GROWTH BALANCED
COMPONENT COMPONENT COMPONENT
<S> <C> <C> <C>
What other investments
can the Portfolio or
Managed Components use?
- - ADRs/EDRs/GDRs Yes Yes Yes
- - Currency transactions Yes Yes Yes
- - Currency baskets Yes Yes Yes
- - Emerging markets Yes Yes Yes
- - PFICs Yes Yes Yes
- - Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
- - Options and futures Yes Yes Yes
- - Securities lending Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%)
- - Special situations Yes Yes Yes
- - Borrowing for temporary Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%)
or emergency purposes
What other potential - foreign exposure - foreign exposure - foreign exposure
risks can affect the - emerging markets - emerging markets - emerging markets
Portfolio or Managed - euro conversion - euro conversion - euro conversion
Component? - illiquidity - credit quality - illiquidity
- prepayment - illiquidity - prepayment
- derivatives - prepayment - derivatives
- hedging - derivatives - hedging
- hedging - small and mid-market
capitalization
<CAPTION>
WMC/FIXED ASSET ALLOCATION:
INCOME DIVERSIFIED
COMPONENT GROWTH PORTFOLIO STOCK PORTFOLIO
<S> <C> <C> <C>
What other investments
can the Portfolio or
Managed Components use?
- - ADRs/EDRs/GDRs No Yes Yes
- - Currency transactions Yes Yes Yes
- - Currency baskets Yes Yes Yes
- - Emerging markets Yes (up to 20%, including Yes Yes
investments in foreign
and domestic junk bonds)
- - PFICs Yes Yes Yes
- - Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
- - Options and futures Yes Yes Yes
- - Securities lending Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%)
- - Special situations Yes Yes Yes
- - Borrowing for temporary Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%)
or emergency purposes
What other potential - foreign exposure - emerging markets - emerging markets
risks can affect the - emerging markets - euro conversion - euro conversion
Portfolio or Managed - euro conversion - credit quality - illiquidity
Component? - credit quality - junk bonds - prepayment
- junk bonds - illiquidity - derivatives
- illiquidity - prepayment - hedging
- prepayment - derivatives - small and mid- market
- derivatives - hedging capitalization
- hedging - foreign exposure
</TABLE>
15
<PAGE>
SEASONS SELECT PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LARGE CAP LARGE CAP COMPOSITE
GROWTH PORTFOLIO PORTFOLIO LARGE CAP VALUE PORTFOLIO
What are the Portfolio's equity securities of equity securities of equity securities of
principal investments large companies (at least large companies (at least large companies (at least
(under normal market 65% of total assets) 65% of total assets) that 65% of total assets)
conditions)? selected through a growth offer the potential for selected through a value
strategy long-term growth of strategy
capital or dividends
Which index or subset of S&P S&P S&P
an index will the 500-Registered Trademark-/ 500-Registered Trademark- 500-Registered Trademark-/
Portfolio's index BARRA Composite BARRA
component seek to Growth Index Stock Price Index Value Index
replicate?
What are the Portfolio's - stock market volatility - stock market volatility - stock market volatility
principal risks? - indexing - indexing - indexing
- securities selection - securities selection - securities selection
- growth stocks - growth stocks - non- diversification
- non-diversification - non- diversification - foreign exposure
- foreign exposure - foreign exposure
<CAPTION>
MID CAP GROWTH
PORTFOLIO MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
What are the Portfolio's equity securities of equity securities of equity securities of
principal investments medium-sized companies medium-sized companies small companies (at least
(under normal market (at least 65% of total (at least 65% of total 65% of total assets)
conditions)? assets) selected through assets) selected through
a growth strategy a value strategy
Which index or subset of Russell MidCap-TM- Russell MidCap-TM- Russell
an index will the Growth Index Value Index 2000-Registered Trademark-
Portfolio's index Index
component seek to
replicate?
What are the Portfolio's - stock market volatility - stock market volatility - stock market volatility
principal risks? - indexing - indexing - indexing
- securities selection - securities selection - securities selection
- growth stocks - non- diversification - growth stocks
- non- diversification - mid-market - small market
- mid-market capitalization capitalization
capitalization - non- diversification
- foreign exposure - foreign exposure
<CAPTION>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
What are the Portfolio's equity securities of fixed income securities, a diversified selection
principal investments issuers in at least 3 including U.S. and of money market
(under normal market countries other than the foreign government instruments
conditions)? United States securities, mortgaged-
backed securities,
investment grade debt
securities, and high
yield/high risk bonds
(junk bonds)
Which index or subset of MSCI EAFE Lehman Government/ Corp. N/A
an index will the Index Bond Index
Portfolio's index
component seek to
replicate?
What are the Portfolio's - stock market volatility - bond market volatility - securities selection
principal risks? - indexing - indexing - interest rate
- securities selection - securities selection fluctuations
- foreign exposure - interest rate
- emerging markets fluctuations
- euro conversion - credit quality
- non-diversification - issuer default
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
LARGE CAP LARGE CAP COMPOSITE
GROWTH PORTFOLIO PORTFOLIO LARGE CAP VALUE PORTFOLIO
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio use?
- - Large company stocks See principal See principal See principal
investments section above investments section above investments section above
- - Medium-sized company Yes Yes Yes
stocks
- - Small company stocks Yes Yes Yes
- - Active trading Yes Yes Yes
- - Types of fixed income
securities:
Investment Yes Yes Yes
grade
U.S. Yes Yes Yes
government securities
Asset-backed and Yes Yes Yes
mortgage-backed
securities
Junk bonds No Yes Yes
(up to 15%) (up to 10%)
- - Short-term Yes Yes Yes
money market (up to 25%) (up to 25%) (up to 25%)
instruments
- - REITs Yes Yes Yes
<CAPTION>
MID CAP GROWTH
PORTFOLIO MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio use?
- - Large company stocks Yes Yes Yes
- - Medium-sized company See principal See principal Yes
stocks investments section above investments section above
- - Small company stocks Yes Yes See principal
investments section above
- - Active trading Yes Yes Yes
- - Types of fixed income
securities:
Investment Yes Yes Yes
grade
U.S. Yes Yes Yes
government securities
Asset-backed and Yes Yes Yes
mortgage-backed
securities
Junk bonds No Yes Yes
(up to 20%) (up to 20%)
- - Short-term Yes Yes Yes
money market (up to 25%) (up to 25%) (up to 25%)
instruments
- - REITs Yes Yes Yes
<CAPTION>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
What other investment
strategies can the
Portfolio use?
- - Large company stocks Yes No No
- - Medium-sized company Yes No No
stocks
- - Small company stocks Yes No No
- - Active trading Yes Yes No
- - Types of fixed income
securities:
Investment Yes See principal Yes
grade investments section above
U.S. Yes See principal Yes
government securities investments section above
Asset-backed and Yes Yes Yes
mortgage-backed
securities
Junk bonds Yes Yes No
(up to 35%) (up to 20%)
- - Short-term Yes Yes See principal
money market (up to 25%) (up to 25%) investments section above
instruments
- - REITs Yes No No
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
LARGE CAP LARGE CAP COMPOSITE
GROWTH PORTFOLIO PORTFOLIO LARGE CAP VALUE PORTFOLIO
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio use?
- - Borrowing for temporary Yes Yes Yes
or emergency purposes (up to 33 1/3%) (up to 33 1/3%) (up to 33 1/3%)
- - Defensive investments Yes Yes Yes
- - Foreign Yes Yes Yes
securities (up to 30%) (up to 30%) (up to 30%)
- - ADRs/EDRs/ GDRs Yes Yes Yes
- - PFICs Yes Yes No
(up to 10%)
- - Currency transactions Yes Yes Yes
- - Currency Yes Yes Yes
baskets
- - Emerging Yes Yes Yes
markets
- - Illiquid securities Yes Yes Yes
(up to 15%) (up to 15%) (up to 15%)
- - Options and futures Yes Yes Yes
- - Securities lending Yes Yes Yes
(up to 33 1/3%) (up to 33 1/3%) (up to 33 1/3%)
- - Hybrid instruments Yes Yes Yes
(up to 10%) (up to 10%) (up to 10%)
<CAPTION>
MID CAP GROWTH
PORTFOLIO MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio use?
- - Borrowing for temporary Yes Yes Yes
or emergency purposes (up to 33 1/3%) (up to 33 1/3%) (up to 33 1/3%)
- - Defensive investments Yes Yes Yes
- - Foreign Yes Yes Yes
securities (up to 30%) (up to 30%) (up to 30%)
- - ADRs/EDRs/ GDRs Yes Yes Yes
- - PFICs No Yes Yes
(up to 10%) (up to 10%)
- - Currency transactions Yes Yes Yes
- - Currency Yes Yes Yes
baskets
- - Emerging Yes Yes Yes
markets
- - Illiquid securities Yes Yes Yes
(up to 15%) (up to 15%) (up to 15%)
- - Options and futures Yes Yes Yes
- - Securities lending Yes Yes Yes
(up to 33 1/3%) (up to 33 1/3%) (up to 33 1/3%)
- - Hybrid instruments Yes Yes Yes
(up to 10%) (up to 10%) (up to 10%)
<CAPTION>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
What other investment
strategies can the
Portfolio use?
- - Borrowing for temporary Yes Yes Yes
or emergency purposes (up to 33 1/3%) (up to 33 1/3%) (up to 5%)
- - Defensive investments Yes Yes Yes
- - Foreign See principal Yes No
securities investments section above (up to 30%)
- - ADRs/EDRs/ GDRs Yes Yes No
- - PFICs Yes Yes No
(up to 10%)
- - Currency transactions Yes Yes No
- - Currency Yes Yes No
baskets
- - Emerging Yes Yes No
markets
- - Illiquid securities Yes Yes Yes
(up to 15%) (up to 15%) (up to 10%)
- - Options and futures Yes Yes No
- - Securities lending Yes Yes No
(up to 33 1/3%) (up to 33 1/3%)
- - Hybrid instruments Yes Yes No
(up to 10%) (up to 10%)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
LARGE CAP LARGE CAP COMPOSITE
GROWTH PORTFOLIO PORTFOLIO LARGE CAP VALUE PORTFOLIO
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio use?
- - Interest rate swaps, Yes Yes Yes
mortgage swaps, caps,
floors and collars
- - Special situations Yes Yes Yes
What other potential - interest rate - interest rate - interest rate
risks can affect a fluctuations fluctuations fluctuations
Portfolio? - credit quality - credit quality - credit quality
- foreign exposure - foreign exposure - foreign exposure
- euro conversion - emerging markets - emerging markets
- illiquidity - euro conversion - euro conversion
- prepayment - illiquidity - illiquidity
- derivatives - prepayment - prepayment
- hedging - derivatives - derivatives
- small and mid-market - hedging - hedging
capitalization - small and mid-market - small and mid-market
capitalization capitalization
<CAPTION>
MID CAP GROWTH
PORTFOLIO MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
<S> <C> <C> <C>
What other investment
strategies can the
Portfolio use?
- - Interest rate swaps, Yes Yes Yes
mortgage swaps, caps,
floors and collars
- - Special situations Yes Yes Yes
What other potential - interest rate - interest rate - interest rate
risks can affect a fluctuations fluctuations fluctuations
Portfolio? - credit quality - credit quality - credit quality
- foreign exposure - foreign exposure - foreign exposure
- euro conversion - euro conversion - euro conversion
- illiquidity - illiquidity - illiquidity
- prepayment - prepayment - prepayment
- derivatives - derivatives - derivatives
- hedging - hedging - hedging
- small market - small market - mid-market
capitalization capitalization capitalization
<CAPTION>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
What other investment
strategies can the
Portfolio use?
- - Interest rate swaps, Yes Yes No
mortgage swaps, caps,
floors and collars
- - Special situations Yes Yes Yes
What other potential - interest rate - foreign exposure - euro conversion
risks can affect a fluctuations - emerging markets - illiquidity
Portfolio? - credit quality - euro conversion - prepayment
- illiquidity - illiquidity
- prepayment - prepayment
- derivatives - derivatives
- hedging - hedging
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
INVESTMENT TERMINOLOGY
LARGE COMPANIES generally, have market capitalizations of over $5 billion,
although there may be some overlap among capitalization categories.
MEDIUM SIZED COMPANIES generally have market capitalizations ranging from $1
billion to $5 billion, although there may be some overlap among capitalization
categories. Benchmark indices such as the S&P 400-Registered Trademark- MidCap
Index includes issuers with capitalizations ranging from $500 million to $10
billion. Accordingly, Portfolios will consider companies within this
capitalization range to be "mid cap," based also on certain other relevant
criteria.
SMALL COMPANIES generally have market capitalizations of $1 billion or less,
although there may be some overlap among capitalization categories. A Manager
may consider an issuer that has a market capitalization in excess of $1 billion
to be "small cap" if it meets certain relevant criteria.
ACTIVE TRADING means that a Portfolio may engage in frequent trading of
portfolio securities to achieve its investment goal. In addition, because a
Portfolio may sell a security without regard to how long it has held the
security, active trading may have tax consequences for certain shareholders,
involving a possible increase in short-term capital gains or losses. Active
trading may result in high portfolio turnover and correspondingly greater
brokerage commissions and other transaction costs, which will be borne directly
by a Portfolio. During periods of increased market volatility, active trading
may be more pronounced.
FIXED INCOME SECURITIES provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible
securities, Yankee bonds, U.S. government securities and mortgage-backed and
asset-backed securities. The issuer of a senior fixed income security is
obligated to make payments on this security ahead of other payments to security
holders.
An INVESTMENT GRADE fixed income security is rated in one of the top four
ratings categories by a debt rating agency (or is considered of comparable
quality by the Manager).
U.S. GOVERNMENT SECURITIES are issued or guaranteed by the U.S. government, its
agencies and instrumentalities. Some U.S. government securities are issued or
unconditionally guaranteed by the U.S. Treasury. They are of the highest
possible credit quality. While these securities are subject to variations in
market value due to fluctuations in interest rates, they will be paid in full if
held to maturity. Other U.S. government securities are neither direct
obligations of, nor 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.
ASSET-BACKED SECURITIES represent an interest in a pool of consumer or other
types of loans. 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. MORTGAGE-BACKED SECURITIES represent an undivided ownership interest
in a pool of mortgages.
20
<PAGE>
A "JUNK BOND" is a high yield, high risk bond that does not meet the credit
quality standards of investment grade securities.
SHORT-TERM MONEY MARKET INSTRUMENTS include money market securities such as
short-term U.S. government obligations, repurchase agreements, commercial paper,
bankers' acceptances and certificates of deposit. These securities provide a
Portfolio with sufficient liquidity to meet redemptions and cover expenses.
REITs (real estate investment trusts) are trusts that invest primarily in
commercial real estate or real estate related loans. The value of an interest in
a REIT may be affected by the value and the cash flows of the properties owned
or the quality of the mortgages held by the trust.
A Portfolio may BORROW for temporary or emergency purposes including to meet
redemptions. Borrowing may exaggerate changes in a Portfolio's net asset value
and yield. Borrowing will cost the Portfolio interest expense and other fees.
The cost of borrowing may reduce the Portfolio's return.
DEFENSIVE INVESTMENTS include high quality fixed income securities and money
market instruments. A Portfolio will make temporary defensive investments in
response to adverse market, economic, political or other conditions. When a
Portfolio takes a defensive position, it may miss out on investment
opportunities that could have resulted from investing in accordance with its
principal investment strategy. As a result, a Portfolio may not achieve its
investment goal.
FOREIGN SECURITIES are issued by companies located outside of the U.S.,
including emerging markets. Foreign securities may include yankee bonds, foreign
corporate and government bonds, foreign equity securities, American Depositary
Receipts (ADRs) or other similar securities that represents interests in foreign
equity securities, such as European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs).
It may be necessary under certain foreign laws, less expensive, or more
expedient to invest in FOREIGN INVESTMENT COMPANIES, which invest in certain
foreign markets, including emerging markets. Investing through such vehicles may
involve frequent or layered fees or expenses, and the Managers will not invest
in such investment companies unless, in their judgment, the potential benefits
justify the payment of any associated fees and expenses.
PFICS (passive foreign investment companies) are any foreign corporations that
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.
CURRENCY TRANSACTIONS include the purchase and sale of currencies to facilitate
securities transactions and forward currency contracts, which are generally used
to hedge against changes in currency exchange rates.
A CURRENCY BASKET consists of specified amounts of currencies of certain foreign
countries.
EMERGING MARKETS: An emerging market country is generally a country with a low
or middle income economy or that is in the early stages of its industrialization
cycle. For fixed income investments, an emerging market includes those where the
sovereign credit rating is below investment grade. Emerging market countries may
change over time depending on market and economic conditions and the list may
vary by Manager.
21
<PAGE>
ILLIQUID SECURITIES are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
as Rule 144A securities) are not generally considered illiquid because of their
established institutional trading markets.
OPTIONS AND FUTURES are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more
underlying assets or a market or economic index.
SECURITIES LENDING involves a loan of securities by a Portfolio in exchange for
cash or collateral. A Portfolio earns interest on the loan while retaining
ownership of the security.
HYBRID INSTRUMENTS, such as indexed securities (for example Standard and Poor's
Depositary Receipts) and structured securities, can combine the characteristics
of 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 value of such an investment could be
zero.
An INTEREST RATE SWAP is a contract between two parties to exchange interest
payments on a specified principal amount for a specified period. A MORTGAGE SWAP
is a contract between two parties to exchange the difference between a
fixed-rate payment and a floating-rate payment on a notational principal amount
that declines in proportion to the monthly payments and prepayments of an
indexed pool of mortgage-backed securities for a specified period. A CAP is the
right to receive the excess of a reference interest rate over a given rate. A
FLOOR is the right to receive the excess of a given rate, known as the strike
price of the floor, over a reference interest rate. A COLLAR is the strategy
that combines a cap and a floor.
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.
22
<PAGE>
ABOUT THE INDICES
As shown on the charts, beginning on page 16, each Multi-Managed Seasons Select
Portfolio has one passively managed index portion, which seeks to replicate all
or a subset of a nationally-recognized market index.
- - THE S&P 500-REGISTERED TRADEMARK- COMPOSITE STOCK PRICE INDEX, commonly
known as the S&P 500-Registered Trademark-, is an unmanaged index of 500
common stocks that are traded on the New York Stock Exchange, American
Stock Exchange and the NASDAQ National Market, representing a majority of
the total domestic U.S. equity market capitalization.
- - THE S&P 400-REGISTERED TRADEMARK- MIDCAP INDEX is an unmanaged index of
common stocks of 400 companies, in the middle capitalization sector of the
U.S. equities market.
- - RUSSELL 2000-REGISTERED TRADEMARK- INDEX measures the performance of the
2,000 smallest companies in the Russell 3000-Registered Trademark- Index,
and generally represents less than 20% of the total market capitalization
of the Russell 3000-Registered Trademark- Index. The Russell
3000-Registered Trademark- Index is comprised of the 3000 largest U.S.
companies as determined by market capitalization.
- - RUSSELL MIDCAP-TM- GROWTH INDEX measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell
1000-Registered Trademark- Growth index.
- - RUSSELL MIDCAP-TM- VALUE INDEX measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell
1000-Registered Trademark- Value index.
- - RUSSELL 1000-REGISTERED TRADEMARK- INDEX measures the performance of the
1,000 largest companies in the Russell 3000-Registered Trademark- Index,
and generally represents over 75% of the total market capitalization of the
Russell 3000-Registered Trademark- Index. The Russell
3000-Registered Trademark- Index is comprised of the 3000 largest U.S.
companies as determined by market capitalization.
- - THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX is an unmanaged
index that includes over 1,000 companies representing the stock markets of
Europe, Australia, New Zealand and the Far East. The Index is weighted by
market capitalization and therefore has a heavy representation in countries
with large stock markets, such as Japan.
- - THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX is a measure of the market value
of approximately 5,300 bonds, each with a face value currently in excess of
$1 million, which have at least one year to maturity and are rated "Baa" or
higher by a nationally recognized statistical rating organization.
Certain Portfolios invest in either the growth or value "subset" of an index.
These subsets are created by splitting an index according to "book-to-price"
ratio (that is, the difference between an issuer's "book value" and its market
capitalization). The value subset of an index contains securities of issuers
with higher book-to-price ratios, while a growth subset contains those of
issuers with lower book-to-price ratios.
The S&P/BARRA GROWTH AND VALUE INDEXES are constructed by dividing the stocks in
an index according to a single attribute: book-to-price ratio. This splits the
index into two mutually exclusive groups designed to track two of the
predominant investment styles in the U.S. equity market. The value index
contains firms with higher book-to-price ratios; conversely, the growth index
has firms with lower book-to-price ratios. Each company in the index is assigned
to either the value or growth index so that the two style indices "add up" to
the full index. Like the full S&P indexes, the value and growth indexes are
capitalization-weighted, meaning that each stock is weighted in proportion to
its market value.
23
<PAGE>
RISK TERMINOLOGY
MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities held by
a Portfolio.
INDEXING: The passively-managed index portion of each Seasons Select Portfolio
will not sell stocks in its portfolio and buy different stocks over the course
of a year other than in conjunction with changes in its target index, even if
there are adverse developments concerning a particular stock, company or
industry. There can be no assurance that the strategy will be successful.
SECURITIES SELECTION: A strategy used by a Portfolio, or securities selected by
its portfolio manager, may fail to produce the intended return.
INTEREST RATE FLUCTUATIONS: Volatility of the bond market is due principally to
changes in interest rates. As interest rates rise, bond prices typically fall;
and as interest rates fall, bond prices typically rise. Longer-term and lower
quality bonds tend to be more sensitive to changes in interest rates.
GROWTH STOCKS: 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.
FOREIGN EXPOSURE: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In
addition, there may be less publicly available information about a foreign
company and it may not be subject to the same uniform accounting, auditing and
financial reporting standards as U.S. companies. Foreign governments may not
regulate securities markets and companies to the same degree as in the U.S.
Foreign investments will also be affected by local political or economic
developments and governmental actions. Consequently, foreign securities may be
less liquid, more volatile and more difficult to price than U.S. securities.
These risks are heightened when the issuer is in an EMERGING MARKET.
Historically, the markets of EMERGING MARKET countries have been more volatile
than more developed markets; however, such markets can provide higher rates of
return to investors.
EURO CONVERSION: Effective January 1, 1999, several European countries
irrevocably fixed 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.
SunAmerica 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.
CREDIT QUALITY: The creditworthiness of the issuer is always a factor in
analyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue JUNK
BONDS. In addition to the risk of default, junk bonds may be more volatile, less
liquid, more difficult to value and more susceptible to adverse economic
conditions or investor perceptions than other bonds.
24
<PAGE>
ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
PREPAYMENT: Prepayment risk is the possibility that the principal of the loans
underlying mortgage-backed or other asset-backed securities may be retired in
advance of the maturity date. As a general rule, prepayments increase during a
period of falling interest rates and decrease during a period of rising interest
rates. As a result of prepayments, in periods of declining interest rates a
Portfolio may be required to reinvest its assets in securities with lower
interest rates. In periods of increasing interest rates, prepayments generally
may decline, with the effect that the securities subject to prepayment risk held
by a Portfolio may exhibit price characteristics of longer-term debt securities.
DERIVATIVES: In addition to general risks relating to market volatility,
interest rate fluctuations, credit quality, options and futures contracts are
subject to certain special risks. To the extent a contract is used to hedge
another position in the portfolio, there is a risk that changes in the value of
the contract will not exactly match those of the hedged position. Moreover,
while hedging can reduce or eliminate losses, it can also reduce or eliminate
gains. To the extent an option or futures contract is used to enhance return,
rather than as a hedge, a Portfolio will be directly exposed to the risks of the
contract. Gains or losses from non-hedging positions may be substantially
greater than the cost of the position.
HEDGING: A strategy in which a Manager uses a derivative to offset the risk
that other instruments in a Portfolio's holdings may decrease in value. Gains on
a derivative that reacts in an opposite manner to market movements may
substantially reduce losses on the other investment. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a different
manner than the Manager anticipates or if the cost of the derivative outweighs
the benefit of the hedge. Hedging also involves the risk that changes in the
value of the derivative will not match those of the instruments being hedged as
expected, in which case any losses on the instruments being hedged may not be
reduced.
SMALL AND MID-MARKET CAPITALIZATION: Companies with smaller market
capitalizations (particularly under $1 billion) tend to be at early stages of
development with limited product lines, market access for products, financial
resources, access to new capital, or depth in management. Consequently, the
securities of smaller companies may not be as readily marketable and may be
subject to more abrupt or erratic market movements. Securities of medium sized
companies are usually more volatile than shares of large companies and entail
greater risks.
NON-DIVERSIFICATION: Non-diversified investment companies can invest a larger
portion of their assets in the stock of a single company than can diversified
investment companies, and thus they can concentrate in a smaller number of
stocks. A non-diversified investment company's risk may increase because the
effect of each stock on its performance is greater.
25
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND MANAGER
SUNAMERICA ASSET MANAGEMENT CORP. SUNAMERICA serves as investment adviser and
manager for all the Portfolios of the Trust. SunAmerica selects the Subadvisers
for the Portfolios, serves as Manager for certain Portfolios or portions of
Portfolios, provides various administrative services and supervises the daily
business affairs of each Portfolio.
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 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, SunAmerica serves as adviser, manager and/or
administrator for Anchor Pathway Fund, Anchor Series Trust, SunAmerica Strategic
Investment Series, Inc., Style Select Series, Inc., SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money Market Funds, Inc. and SunAmerica
Series Trust. SunAmerica managed, advised and/or administered assets of
approximately $19.3 billion as of March 31, 1999 for investment companies,
individuals, pension accounts, and corporate and trust accounts.
In addition to serving as the investment adviser and manager to the Trust and
each Portfolio and supervising activities of the other Subadvisers, SunAmerica
manages the CASH MANAGEMENT PORTFOLIO, the SunAmerica/Aggressive Growth and
SunAmerica/Balanced components of the Multi-Managed Seasons Portfolios, and
portions of the LARGE-CAP COMPOSITE, SMALL-CAP and DIVERSIFIED FIXED INCOME
PORTFOLIOS.
For the fiscal year ended March 31, 1999 each Seasons Portfolio paid SunAmerica
a fee equal to the following percentage of average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO FEE
- ------------------------------------------------------------ ---------
<S> <C>
Multi-Managed Growth Portfolio.............................. 0.89%
Multi-Managed Moderate Growth Portfolio..................... 0.85%
Multi-Managed Income/Equity Portfolio....................... 0.81%
Multi-Managed Income Portfolio.............................. 0.77%
Asset Allocation: Diversified Growth Portfolio.............. 0.85%
Stock Portfolio............................................. 0.85%
</TABLE>
26
<PAGE>
For the period February 8, 1999 (commencement of operations) through March 31,
1999, each Seasons Select Portfolio paid SunAmerica a fee equal to the following
percentage of average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO FEE
- ------------------------------------------------------------ ---------
<S> <C>
Large Cap Growth Portfolio.................................. 0.80%
Large Cap Composite Portfolio............................... 0.80%
Large Cap Value Portfolio................................... 0.80%
Mid Cap Growth Portfolio.................................... 0.85%
Mid Cap Value Portfolio..................................... 0.85%
Small Cap Portfolio......................................... 0.85%
International Equity Portfolio.............................. 1.00%
Diversified Fixed Income Portfolio.......................... 0.70%
Cash Management Portfolio................................... 0.55%
</TABLE>
SunAmerica compensates the Subadvisers out of the fees that it receives from the
Portfolios. SunAmerica may terminate any agreement with a Subadviser without
shareholder approval. Moreover, SunAmerica has received an exemptive order from
the Securities and Exchange Commission that permits SunAmerica, subject to
certain conditions, to enter into agreements relating to the Trust with
Subadvisers approved by the Board of Trustees without obtaining shareholder
approval. The exemptive order also permits 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 agreements with
Subadvisers or continue the employment of existing Subadvisers after events that
would otherwise cause an automatic termination of a Subadviser agreement.
Shareholders of a Portfolio have the right to terminate an agreement with a
Subadviser for that Portfolio at any time by a vote of the majority of the
outstanding voting securities of such Portfolio. Shareholders will be notified
of any Subadviser changes. The order also permits the Trust to disclose to
shareholders the Subadviser fees only in the aggregate for each Portfolio. 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. These fees do not
increase Portfolio expenses.
27
<PAGE>
INFORMATION ABOUT THE SUBADVISERS
BANKERS TRUST COMPANY. BANKERS TRUST has principal offices at 130 Liberty
Street (One Bankers Trust Plaza), New York 10006. Bankers Trust is a worldwide
merchant bank that provides investment management services for the nation's
largest corporations and institutions. As of March 31, 1999, Bankers Trust
managed approximately $378 billion in assets.
GOLDMAN SACHS ASSET MANAGEMENT AND GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL. GSAM, One New York Plaza, New York, New York 10004, is a
separate operating division of Goldman Sachs & Co., which registered as an
investment adviser in 1981. GSAM-INTERNATIONAL, 133 Peterborough Court, London
EC4A 2BB, England, an affiliate of Goldman Sachs & Co., became a member of the
Investment Management Regulatory Organisation Limited in 1990 and registered as
an investment adviser in 1991. As of March 31, 1999, GSAM and
GSAM-International, together with their affiliates, acted as investment adviser
or distributor for assets in excess of $201 billion. The Goldman Sachs Group,
L.P., which controls GSAM and GSAM-International, has merged into the Goldman
Sachs Group, Inc. as the result of an initial public offering.
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 March 31, 1999, had assets under management of
approximately $136 billion.
LORD, ABBETT & CO. LORD ABBETT, located in the General Motors Building, at 767
Fifth Avenue, New York, New York 10153, has been an investment manager for over
70 years and as of March 31, 1999 managed over $30 billion in a family of mutual
funds and other advisory accounts. Lord Abbett provides similar services to 35
other mutual fund portfolios having various investment objectives and also
advises other investment clients. Lord Abbett has entered into a sub-subadvisory
agreement with FUJI-LORD ABBETT, INTERNATIONAL LIMITED with respect to the
INTERNATIONAL EQUITY PORTFOLIO. FUJI-LORD ABBETT, located at River Plate House,
7-11 Finsbury Circus, London, EC2M 7HJ, England, provides investment advisory
services to a variety of institutional accounts and offshore pooled vehicles
and, since 1996, has advised one or more of Lord Abbet's mutual funds with
respect to international equity investments. As of March 31, 1999, Fuji-Lord
Abbett had assets under management of approximately $950 million.
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 $306 billion as of March 31, 1999.
T. ROWE PRICE ASSOCIATES, INC. T. ROWE PRICE is a Maryland corporation with
principal offices at 100 East Pratt Street, Baltimore, Maryland 21202. T. Rowe
Price serves as investment adviser to the T. Rowe Price family of no-load mutual
funds and to individual and institutional clients. T. Rowe Price and its
affiliates managed assets in excess of $149 billion as of March 31, 1999.
WELLINGTON MANAGEMENT COMPANY, LLP. WMC is a Massachusetts limited liability
partnership. 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
March 31, 1999, WMC had discretionary management authority with respect to
approximately $215.3 billion of assets.
28
<PAGE>
PORTFOLIO MANAGEMENT
The management of each Portfolio and Managed Component is summarized in the
following tables.
<TABLE>
<CAPTION>
SEASONS PORTFOLIOS
PORTFOLIO MANAGEMENT ALLOCATED AMONG
PORTFOLIO THE FOLLOWING MANAGERS
- -------------------------------------------------------------------------------------------
<S> <C>
Multi-Managed Growth Portfolio - Janus
(through Janus/Growth component)
- SunAmerica
(through SunAmerica/Aggressive Growth
component and SunAmerica/Balanced
component)
- WMC
(through WMC/Fixed Income component)
- -------------------------------------------------------------------------------------------
Multi-Managed Moderate Growth Portfolio - Janus
(through Janus/Growth component)
- SunAmerica
(through SunAmerica/Aggressive Growth
component and SunAmerica/Balanced
component)
- WMC
(through WMC/Fixed Income component)
- -------------------------------------------------------------------------------------------
Multi-Managed Income/Equity Portfolio - Janus
(through Janus/Growth component)
- SunAmerica
(through SunAmerica/Balanced
component)
- WMC
(through WMC/Fixed Income component)
- -------------------------------------------------------------------------------------------
Multi-Managed Income Portfolio - Janus
(through Janus/Growth component)
- SunAmerica
(through SunAmerica/Balanced
component)
- WMC
(through WMC/Fixed Income component)
- -------------------------------------------------------------------------------------------
Asset Allocation: Diversified Growth Portfolio - Putnam Investment Management, Inc.
("Putnam")
- -------------------------------------------------------------------------------------------
Stock Portfolio - T. Rowe Price Associates, Inc.
("T. Rowe Price")
- -------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SEASONS SELECT PORTFOLIOS
PORTFOLIO MANAGEMENT ALLOCATED AMONG
PORTFOLIO THE FOLLOWING MANAGERS
- -------------------------------------------------------------------------------------------
<S> <C>
Large Cap Growth Portfolio - Bankers Trust Company ("Bankers
Trust")
- Goldman Sachs Asset Management
("GSAM")
- Janus
- -------------------------------------------------------------------------------------------
Large Cap Composite Portfolio - Bankers Trust
- SunAmerica
- T. Rowe Price
- -------------------------------------------------------------------------------------------
Large Cap Value Portfolio - Bankers Trust
- T. Rowe Price
- WMC
- -------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio - Bankers Trust
- T. Rowe Price
- WMC
- -------------------------------------------------------------------------------------------
Mid Cap Value Portfolio - Bankers Trust
- GSAM
- Lord, Abbett & Co. ("Lord Abbett")
- -------------------------------------------------------------------------------------------
Small Cap Portfolio - Bankers Trust
- Lord Abbett
- SunAmerica
- -------------------------------------------------------------------------------------------
International Equity Portfolio - Bankers Trust
- Goldman Sachs Asset Management
International ("GSAM-International")
- Lord Abbett
(subcontracted to Fuji-Lord Abbett
International, Limited ("Fuji-Lord
Abbett"))
- -------------------------------------------------------------------------------------------
Diversified Fixed Income Portfolio - Bankers Trust
- SunAmerica
- WMC
- -------------------------------------------------------------------------------------------
Cash Management Portfolio - SunAmerica
- -------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
The primary investment manager(s) and/or the management team(s) for each
Portfolio and Managed Component is set forth in the following tables.
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGER(S) MANAGER(S) (AND/OR EXPERIENCE
MANAGED COMPONENT MANAGEMENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SunAmerica/ SunAmerica - Donna M. Calder Ms. Calder has been a
Aggressive Growth Vice President and portfolio manager since
component Portfolio Manager joining the firm in March
(Multi-Managed (Domestic Equity 1998. Prior to joining
Seasons Portfolio) Investment Team) SunAmerica, Ms. Calder was
the Founder and General
Partner of Manhattan Capital
Partners, L.P. (1991-1995)
- -------------------------------------------------------------------------------------------
SunAmerica/ SunAmerica - Francis D. Gannon Mr. Gannon has been a
Balanced component Vice President and portfolio manager with the
(Multi-Managed Portfolio Manager firm since 1996. He joined
Seasons Portfolio) (Domestic Equity SunAmerica as an equity
Investment Team) analyst in 1993.
- Fixed Income Investment
Team
- -------------------------------------------------------------------------------------------
Janus/Growth Janus - Warren B. Lammert Mr. Lammert first joined
component Executive Vice President Janus in 1987 and has been a
(Multi-Managed Portfolio Manager portfolio manager with the
Seasons Portfolio) firm since 1993. He is a
Chartered Financial Analyst.
- -------------------------------------------------------------------------------------------
WMC/Fixed Income WMC - Lucius T. Hill, III Mr. Hill has been a portfolio
component Senior Vice President and manager with WMC since
(Multi-Managed Partner joining the firm in 1993.
Seasons Portfolio)
- -------------------------------------------------------------------------------------------
Asset Allocation: Putnam - Global Asset Allocation N/A
Diversified Growth Committee
Portfolio
- -------------------------------------------------------------------------------------------
Stock Portfolio T. Rowe Price - Robert W. Smith Mr. Smith has been managing
Investment Advisory investments with T. Rowe
Committee Chairman, Price since joining the firm
Managing Director, and in 1992.
Equity Portfolio Manager
- -------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LARGE CAP GROWTH BANKERS TRUST - Kathleen Condon Ms. Condon has been an investment
PORTFOLIO Managing Director and Chief officer since joining Bankers Trust
Investment Officer of Structured in 1970.
Investments (passively managed
portion)
----------------------------------------------------------------------
GSAM - George D. Adler Mr. Adler joined GSAM as a portfolio
Vice President and Senior manager and Co-Chair of the Growth
Portfolio Manager Equity Investment Committee in 1997.
From 1990 to 1997, he was a
portfolio manager at Liberty
Investment Management, Inc.
("Liberty").
- Robert G. Collins Mr. Collins joined GSAM in 1997.
Vice President and Senior From 1991 to 1997, he was a
Portfolio Manager portfolio manager at Liberty. His
past experiences include work as a
special situations analyst with
Raymond James & Associates for five
years.
- Herbert E. Ehlers Mr. Ehlers joined GSAM as a senior
Managing Director and Senior portfolio manager and Chief
Portfolio Manager Investment Officer of the Growth
Equity team in 1997. From 1994 to
1997, he was the Chief Investment
Officer and Chairman at Liberty. He
was a portfolio manager and
president at Liberty's predecessor
firm, Eagle Asset Management, from
1984 to 1994.
- Gregory H. Ekizian Mr. Ekizian joined GSAM as portfolio
Vice President and Senior manager and Co-Chair of the Growth
Portfolio Manager Equity Investment Committee in 1997.
From 1990 to 1997, he was a
portfolio manager at Liberty and its
predecessor firm, Eagle Asset
Management.
- -------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- David G. Shell Mr. Shell joined GSAM as a portfolio
Vice President and Senior manager in 1997. From 1987 to 1997,
Portfolio Manager he was a portfolio manager at
Liberty and its predecessor firm,
Eagle Asset Management.
- Ernest C. Segundo, Jr. Mr. Segundo joined GSAM as a
Vice President and Senior portfolio manager in 1997. From 1992
Portfolio Manager to 1997, he was a portfolio manager
at Liberty.
----------------------------------------------------------------------
Janus - Marc Pinto Mr. Pinto has been the Vice
Vice President of Portfolio President of Portfolio Management of
Management and Portfolio Manager Janus since 1994. From 1993 to 1994,
he was Co-President of Creative
Retail Technology, a producer of
hardware for retail clients. From
1991 to 1993, Mr. Pinto was an
equity analyst at Priority
Investments Ltd., a family owned
business.
- Warren B. Lammert See above.
Executive Vice President and
Portfolio Manager
- -------------------------------------------------------------------------------------------
Large Cap Bankers Trust - Kathleen Condon See above.
Composite Portfolio Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
SunAmerica - Francis D. Gannon See above.
Vice President and
Portfolio Manager
(Domestic Equity
Investment Team)
----------------------------------------------------------------------
T. Rowe Price - Robert W. Smith See above.
Investment Advisory Committee
Chairman, Managing Director and
Equity Portfolio Manager
- -------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LARGE CAP VALUE BANKERS TRUST - Kathleen Condon See above.
PORTFOLIO Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
T. Rowe Price - Brian C. Rogers Mr. Rogers has been managing
Investment Advisory Committee, investments at T. Rowe Price since
Chairman Director and Managing 1983.
Director
----------------------------------------------------------------------
WMC - John R. Ryan Mr. Ryan joined WMC in 1981 as a
Senior Vice President and portfolio manager on the firm's
Managing Partner Value Yield Team.
(Value/Yield Team)
- Steven T. Irons Mr. Irons joined WMC in 1993 as a
Vice President and Equity research analyst on the firm's Value
Research Analyst Yield Team.
- -------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio Bankers Trust - Kathleen Condon See above.
Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
T. Rowe Price - Donald J. Peters Mr. Peters has been a portfolio
Vice President, Portfolio manager and quantitative investment
Manager & Quantitative analyst for T. Rowe Price's Equity
Investment Analyst Research Division since joining the
firm in 1993.
----------------------------------------------------------------------
WMC - Robert D. Rands Mr. Rands joined WMC in 1978 as a
Senior Vice President and special situations analyst and
Partner became a portfolio manager in 1983.
- -------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Steven Angeli Mr. Angeli joined WMC as a research
Vice President and Portfolio analyst in 1994 after receiving his
Manager MBA from Darden Graduate School of
Business Administration at the
University of Virginia. Prior to
joining WMC, Mr. Angeli worked at
Fidelity Management and Research
Company from 1990-1992.
- -------------------------------------------------------------------------------------------
Mid Cap Value Bankers Trust - Kathleen Condon See above.
Portfolio Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
GSAM - Eileen Aptman Ms. Aptman joined GSAM as a research
Vice President and Senior analyst in 1993. She became a
Portfolio Manager portfolio manager in 1996.
- Paul D. Farrell Mr. Farrell joined GSAM as a
Managing Director and Senior portfolio manager in 1991. In 1998,
Portfolio Manager he became responsible for managing
GSAM's Value Team.
- Matthew B. McLennan Mr. McLennan joined GSAM in 1995.
Vice President and Senior From 1994 to 1995, he worked in the
Portfolio Manager Investment Banking Division of GSAM
in Australia. From 1991 to 1994, Mr.
McLennan worked at Queensland
Investment Corporation in Australia.
- Karma Wilson Ms. Wilson joined GSAM as a
Vice President and Senior portfolio manager in 1994. Prior to
Portfolio Manager 1994, she was an investment analyst
with Bankers Trust Australia Ltd.
- -------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LORD ABBETT - Edward K. von der Linde Mr. von der Linde has been a
Portfolio Manager portfolio manager with Lord Abbett
since 1995. He joined the firm as an
equity analyst in 1988.
- Howard E. Hansen Mr. Hansen joined Lord Abbett as an
Associate Portfolio Manager equity analyst in 1995. He has been
an associate portfolio manager since
1997. From 1990-1994, he was an
equity analyst at Alfred Berg Inc.
- -------------------------------------------------------------------------------------------
Small Cap Portfolio Bankers Trust - Kathleen Condon See above.
Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
Lord Abbett - Stephen J. McGruder Senior Mr. McGruder has been a portfolio
Portfolio Manager manager with Lord Abbett since
joining the firm in May 1995. Prior
to joining Lord Abbett, Mr. McGruder
served from October 1988 as Vice
President of Wafra Investment
Advisory Group, a private investment
company.
----------------------------------------------------------------------
SunAmerica - Donna Calder See above.
Portfolio Manager
(Domestic Equity
Investment Team)
- -------------------------------------------------------------------------------------------
International Equity Bankers Trust - Kathleen Condon See above.
Portfolio Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
- -------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GSAM- - Ivor H. Farman Mr. Farman joined GSAM- International
International Executive Director and Senior as a senior portfolio manager in
Portfolio Manager 1996. From 1995 to 1996, he was
responsible for originating and
marketing French equity ideas at
Exane in Paris. Prior to 1995, he
spent five years engaged in French
equity research and marketing at
Banque Nationale de Paris and
Schroders in London.
- Alice Lui Ms. Lui joined GSAM-International as
Vice President a portfolio manager in 1990.
- Paul Greener Mr. Greener joined GSAM-
Associate International as a member of the
Pan-European Equity Team responsible
for European general retailers,
business services and technology
sectors in 1996. From 1994-1996, he
was an equity analyst at CIN Manage-
ment. Prior to 1994, he was a
student at the University of Bir-
mingham.
- Shogo Maeda Mr. Maeda joined GSAM-International
Managing Director and Senior as a portfolio manager in 1994. From
Portfolio Manager 1987 to 1994, he worked at Nomura
Investment Management Incorporated
as a Senior Portfolio Manager.
- -------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Susan Noble Ms. Noble joined GSAM-International
Executive Director and Senior as a senior portfolio manager and
Portfolio Manager head of the European Equity team in
October 1997. From 1986 to 1997, she
worked at Fleming Investment
Management in London, where she most
recently was Portfolio Management
Director for the European equity
investment strategy and process.
- Ravi Shanker Mr. Shanker joined GSAM-
Vice President International as an operations
manager in 1997. From July 1996 to
1997, he worked for Goldman Sachs in
Singapore as a strategic adviser for
transactions involving
infrastructure industries in Asia.
From 1988 to 1996, he worked for
Goldman Sachs as an investment
banker in the Investment Banking
Division.
- Siew-Hua Thio Ms. Thio joined GSAM-International
Vice President as a portfolio manager in 1998. From
1997 to 1998, she was a Head of
Research for Indosuex WI Carr in
Singapore. From 1993 to 1997, she
was a research analyst at the same
firm.
----------------------------------------------------------------------
Fuji-Lord Abbett - Christopher J. Taylor Mr. Taylor is Managing Director of
Portfolio Manager Fuji-Lord Abbett. He has been
employed by Fuji-Lord Abbett and its
predecessor companies since 1987.
- -------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Fixed Income Bankers Trust - Kathleen Condon See above.
Portfolio Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
SunAmerica - John W. Risner Mr. Risner joined SunAmerica as
Vice President and portfolio manager in 1997. From 1992
Portfolio Manager to 1997, Mr. Risner managed the
(Fixed Income Investment Team) High-Yield and Convertible Bond
portfolios for Value Line Asset
Management.
----------------------------------------------------------------------
WMC - John C. Keogh Mr. Keogh joined WMC as a portfolio
Senior Vice President and manager in 1983.
Partner
- -------------------------------------------------------------------------------------------
Cash Management SunAmerica - Fixed Income Investment Team N/A
Portfolio
- -------------------------------------------------------------------------------------------
</TABLE>
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, Boston, Massachusetts, acts as Custodian of
the Trust's assets as well as Transfer and Dividend Paying Agent and in so doing
performs certain bookkeeping, data processing and administrative services.
39
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Shares of the Portfolios are not offered directly to the public. Instead, shares
of the Portfolios are currently offered only to Variable Annuity Account Five, a
separate account of Anchor National Life Insurance Company. So if you would like
to invest in a Portfolio, you must purchase a Seasons Variable Annuity Contract
or a Seasons Select Variable Annuity Contract from Anchor National.
The Seasons and Seasons Select Variable Annuity Contracts offer four variable
investment "Strategies." You should be aware that if you select a Strategy you
will not invest directly in one of the Portfolios. Instead, each Strategy
invests in three of the six Seasons Portfolios, managed collectively by five
different professional investment managers. The allocation of assets among the
Portfolios will vary depending on the objective of the Strategy.
You should also be aware that the Seasons and Seasons Select Variable Annuity
Contracts involve fees and expenses that are not described in this Prospectus,
and that the Contracts also may involve certain restrictions and limitations.
You will find information about purchasing a Seasons Variable Annuity Contract
or a Seasons Select Variable Annuity Contract in the prospectus that offers the
Contract, which accompanies this Prospectus.
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each Portfolio is
determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing its net assets by
the number of its shares outstanding. Investments for which market quotations
are readily available are valued at market, except that short-term securities
with 60 days or less to maturity are valued on an amortized cost basis. All
other securities and assets are valued at "fair value" following procedures
approved by the Trustees.
The INTERNATIONAL EQUITY PORTFOLIO may invest to a large extent in securities
that are primarily listed on foreign exchanges that trade on weekends or other
days when the Trust does not price its shares. As a result, the value of this
Portfolio's shares may change on days when the Trust is not open for purchases
or redemptions.
BUY AND SELL PRICES Variable Annuity Account Five buys and sells shares of a
Portfolio at NAV, without any sales or other charges.
EXECUTION OF REQUESTS The Trust is open on those days when the New York Stock
Exchange is open for regular trading. We execute buy and sell requests at the
next NAV to be calculated after the Trust accepts the request. If the Trust
receives the order before the Trust's close of business (generally 4:00 p.m.,
Eastern time), the order will receive that day's closing price. If the Trust
receives the order after that time, it will receive the next business day's
closing price.
During periods of extreme volatility or market crisis, a Portfolio may
temporarily suspend the processing of sell requests or may postpone payment of
proceeds for up to seven business days or longer, or as allowed by federal
securities laws.
40
<PAGE>
DIVIDEND POLICIES AND TAXES
DISTRIBUTIONS Each Portfolio annually declares and distributes substantially all
of its net investment income in the form of dividends and capital gains
distributions.
DISTRIBUTION REINVESTMENT The dividends and distributions will be reinvested
automatically in additional shares of the same Portfolio on which they were
paid.
TAXABILITY OF A PORTFOLIO Each Portfolio intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. So long as each Portfolio is qualified as a regulated investment
company, it will not be subject to federal income tax on the earnings that it
distributes to its shareholders.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
YEAR 2000
Many computer and computer-based systems cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates (commonly known
as the "Year 2000 Issue"). The Year 2000 Issue could potentially have an adverse
impact on the handling of security trades, the payment of interest and
dividends, pricing and account services. We recognize the importance of the Year
2000 Issue and are taking appropriate steps necessary in preparation for the
year 2000. The Trust's management fully anticipates that their systems will be
adapted in time for the year 2000, and to further this goal they have
coordinated a plan to repair, adapt or replace their systems as necessary. They
have also obtained representations from their outside service providers that
they are doing the same. The Trust's management completed their plan
significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Trust could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Trust invests, which could hurt the Trust's investment returns.
41
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD)
- --------------------------------------------------------------------------------
The Financial Highlights table for each Portfolio is intended to help you
understand the Portfolio's financial performance since inception. Certain
information reflects financial results for a single Portfolio share. The total
returns in each table represent the rate that an investor would have earned on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with each Portfolio's financial statements, is included in
the Statement of Additional Information (SAI), which is available upon request.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Net
realized & Dividends Dividends
Net Asset unrealized declared from net
Value Net gain (loss) Total from from net realized
beginning of investment on investment investment gain on
Period ended period income*/** investments operations income investments
----------------------------------------------------------------------------------------------
<S> <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)
3/31/99 12.85 0.16 4.41 4.57 (0.18) (0.03)
Multi-Managed Moderate Growth Portfolio
4/15/97-3/31/98 10.00 0.27 2.40 2.67 (0.13) (0.17)
3/31/99 12.37 0.28 3.10 3.38 (0.23) (0.02)
Multi-Managed Income/Equity Portfolio
4/15/97-3/31/98 10.00 0.41 1.68 2.09 (0.20) (0.10)
3/31/99 11.79 0.43 1.57 2.00 (0.36) (0.10)
Multi-Managed Income Portfolio
4/15/97-3/31/98 10.00 0.51 1.15 1.66 (0.27) (0.10)
3/31/99 11.29 0.53 0.72 1.25 (0.40) (0.07)
Asset Allocation: Diversified Growth Portfolio
4/15/97-3/31/98 10.00 0.23 1.76 1.99 (0.12) (0.16)
3/31/99 11.71 0.14 0.90 1.04 (0.12) --
Stock Portfolio
4/15/97-3/31/98 10.00 0.03 4.80 4.83 (0.02) (0.15)
3/31/99 14.66 0.03 1.84 1.87 (0.02) (0.30)
----------------------------------------------------------------------------------------------
<CAPTION>
------------ ----------------------------------------------------
Ratio of
Ratio of net
Net expenses investment
Net Asset Assets to income to
Value end of average average
end of Total period net net Portfolio
Period ended period Return*** (000's) assets+ assets+ turnover
------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4/15/97-3/31 $12.85 31.55% $32,481 1.29%# 1.52%# 114%
3/31/99 17.21 35.98 69,712 1.19 1.11 124
4/15/97-3/31 12.37 26.86 32,622 1.21# 2.36# 101
3/31/99 15.50 27.73 75,694 1.16 2.08 105
4/15/97-3/31 11.79 21.10 25,957 1.14# 3.72# 46
3/31/99 13.33 17.27 62,121 1.14 3.51 65
4/15/97-3/31 11.29 16.81 18,378 1.06# 4.69# 47
3/31/99 12.07 11.19 50,250 1.06 4.50 43
4/15/97-3/31 11.71 20.09 50,384 1.21# 2.06# 166
3/31/99 12.63 9.02 117,663 1.21 1.21 149
4/15/97-3/31 14.66 48.59 42,085 1.21# 0.24# 46
3/31/99 16.21 13.05 97,047 1.10 0.20 52
------------ ----------------------------------------------------
</TABLE>
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** 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.
# Annualized
+ 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 Net Investment Income
3/31/98 3/31/99 3/31/98 3/31/99
<S> <C> <C> <C> <C>
------------------------------------
Multi-Managed Growth Portfolio.................... 1.44 % 1.19 % 1.37 % 1.11 %
Multi-Managed Moderate Growth Portfolio........... 1.40 1.16 2.17 2.08
Multi-Managed Income/Equity Portfolio............. 1.43 1.14 3.43 3.51
Multi-Managed Income Portfolio.................... 1.50 1.07 4.25 4.49
Asset Allocation: Diversified Growth Portfolio.... 1.53 1.22 1.74 1.20
Stock Portfolio................................... 1.26 1.10 0.19 0.20
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Net
realized & Dividends Dividends
Net Asset unrealized declared from net
Value Net gain (loss) Total from from net realized
beginning of investment on investment investment gain on
Period ended period income*/** investments operations income investments
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth Portfolio
2/8/99-3/31/99 $10.00 $ -- 0.77 $0.77 -- --
Large Cap Composite Portfolio
2/8/99-3/31/99 10.00 0.01 0.43 0.44 -- --
Large Cap Value Portfolio
2/8/99-3/31/99 10.00 0.02 0.19 0.21 -- --
Mid Cap Growth Portfolio
2/8/99-3/31/99 10.00 -- 0.46 0.46 -- --
Mid Cap Value Portfolio
2/8/99-3/31/99 10.00 0.02 (0.04) (0.02) -- --
Small Cap Portfolio
2/8/99-3/31/99 10.00 -- (0.09) (0.09) -- --
International Equity Portfolio
2/8/99-3/31/99 10.00 0.02 0.32 0.34 -- --
Diversified Fixed Income Portfolio
2/8/99-3/31/99 10.00 0.06 (0.12) (0.06) -- --
Cash Management Portfolio
2/8/99-3/31/99 10.00 0.06 -- 0.06 -- --
----------------------------------------------------------------------------------------------
<CAPTION>
------------ ----------------------------------------------------
Ratio of
Ratio of net
Net expenses investment
Net Asset Assets to income to
Value end of average average
end of Total period net net Portfolio
Period ended period Return*** (000's) assets#/+ assets#/+ turnover
------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/8/99-3/31/ $10.77 7.70% $14,916 1.10% 0.20% 6%
2/8/99-3/31/ 10.44 4.40 11,834 1.10 0.55 8
2/8/99-3/31/ 10.21 2.10 13,625 1.10 1.53 5
2/8/99-3/31/ 10.46 4.60 13,887 1.15 (0.15) 5
2/8/99-3/31/ 9.98 (0.20) 13,088 1.15 1.60 6
2/8/99-3/31/ 9.91 (0.90) 11,140 1.15 0.31 3
2/8/99-3/31/ 10.34 3.40 13,693 1.30 1.43 7
2/8/99-3/31/ 9.94 (0.60) 15,229 1.00 4.53 30
2/8/99-3/31/ 10.06 0.60 2,021 0.85 3.97 --
------------ ----------------------------------------------------
</TABLE>
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** 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
# Annualized
+ During the period February 8, 1999 (commencement of operations) through
March 31, 1999, 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>
Net Investment Income
Expenses# (Loss)#
<S> <C> <C>
-------------------------------------------
Large Cap Growth.................................. 2.12 % (0.82 )%
Large Cap Composite............................... 2.33 (0.68 )
Large Cap Value................................... 2.16 0.47
Mid Cap Growth.................................... 2.22 (1.22 )
Mid Cap Value..................................... 2.23 0.52
Small Cap......................................... 2.46 (1.00 )
International Equity.............................. 3.59 (0.86 )
Diversified Fixed Income.......................... 1.91 3.62
Cash Management................................... 8.41 (3.59 )
</TABLE>
43
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
The following documents contain more information about the Portfolios and
are available free of charge upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Contain financial statements, performance data
and information on portfolio holdings. The annual report also contains a
written analysis of market conditions and investment strategies that
significantly affected a Portfolio's performance for the most recently
completed fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains additional information
about the Portfolios' policies, investment restrictions and business
structure. This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the
Portfolios by contacting:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
1-800-445-7862
Information about the Portfolios (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call (800) SEC-0330 for information on the operation of the
Public Reference Room. Information about the Portfolios is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by writing the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
[LOGO]
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
INVESTMENT COMPANY ACT
File No. 811-07725
44
<PAGE>
Please forward a copy (without charge) of the Seasons Select Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------
Name
------------------------------------------------------------------
Address
------------------------------------------------------------------
City/State/Zip
------------------------------------------------------------------
Date: _____________________ Signed: ______________________________
Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O.
Box 52499, Los Angeles, California 90054-0299
45
<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")
dated July 15, 1999. This Statement of Additional Information incorporates the
Prospectus by reference. The Trust's audited financial statements are
incorporated into this Statement of Additional Information by reference to its
1999 annual report to shareholders. You may request a copy of the Prospectus
and/or annual report at no charge by calling (800) 445-7862 or writing the Trust
at the address below.
P.O. Box 54299
Los Angeles, California 90054-0299
(800) 445-SUN2
July 15, 1999
<PAGE>
TABLE OF CONTENTS
TOPIC PAGE
- ----- ----
THE TRUST...............................................................B-3
INVESTMENT OBJECTIVES AND POLICIES......................................B-4
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS.......................B-42
INVESTMENT RESTRICTIONS................................................B-46
TRUST OFFICERS AND TRUSTEES............................................B-49
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT...........................B-52
SUBADVISORY AGREEMENTS.................................................B-57
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES.............................B-62
SHARES OF THE TRUST....................................................B-63
PRICE OF SHARES........................................................B-64
EXECUTION OF PORTFOLIO TRANSACTIONS....................................B-65
GENERAL INFORMATION....................................................B-68
Custodian.....................................................B-68
Independent Accountants and Legal Counsel.....................B-68
Reports to Shareholders.......................................B-68
Shareholder and Trustee Responsibility........................B-68
Registration Statement........................................B-69
Financial Statements..........................................B-69
B-2
<PAGE>
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 fifteen separate series or portfolios
(each, a "Portfolio" and collectively, the "Portfolios"). On October 30, 1998,
the Board of Trustees approved the creation of the Large-Cap Growth, Large-Cap
Composite, Large-Cap Value, Mid-Cap Growth, Mid-Cap Value, Small-Cap,
International Equity, Diversified Fixed Income and Cash Management Portfolios.
The Board of Trustees may establish additional series in the future.
Six of the Portfolios, the Multi-Managed Growth Portfolio, the
Multi-Managed Moderate Growth Portfolio, the Multi-Managed Income/Equity
Portfolio, the Multi-Managed Income Portfolio (each, a "Multi-Managed Seasons
Portfolio," and collectively, the "Multi-Managed Seasons Portfolios"), the Asset
Allocation: Diversified Growth Portfolio and the Stock Portfolio (collectively,
with the Multi-Managed Seasons Portfolios, the "Seasons Portfolios"), are
available through the Seasons Variable Annuity Contract. The other nine
Portfolios, the Large Cap Growth Portfolio, the Large Cap Composite Portfolio,
the Large Cap Value Portfolio, the Mid Cap Growth Portfolio, the Mid Cap Value
Portfolio, the Small Cap Portfolio, the International Equity Portfolio, the
Diversified Fixed Income Portfolio (each, a "Multi-Managed Seasons Select
Portfolio," and collectively, the "Multi-Managed Seasons Select Portfolios") and
the Cash Management Portfolio (collectively, with the Multi-Managed Seasons
Select Portfolios, the "Seasons Select Portfolios") are available in addition to
the Seasons Portfolios through the Seasons Select Variable Annuity Contract. The
Multi-Managed Seasons and the Multi-Managed Seasons Select Portfolios, as
described more fully in the Prospectus, are managed by more than one investment
adviser.
Shares of the Portfolios 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
American International Group, Inc. ("AIG"), a Delaware corporation. The Life
Company may issue variable life contracts that also will use the Trust as the
underlying investment. The offering of Trust shares to variable annuity and
variable life separate accounts is referred to as "mixed funding." It may be
disadvantageous for variable annuity separate accounts and variable life
separate accounts to invest in the Trust simultaneously. Although neither the
Life Company nor the Trust currently foresees such disadvantages either to
variable annuity or variable life contract owners, the Board of Trustees of the
Trust would monitor events in order to identify any material conflicts to
determine what action, if any, should be taken in response thereto. Shares of
the Trust may be offered to separate accounts of other life insurance companies
that are affiliates of the Life Company.
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SunAmerica Asset Management Corp. ("SunAmerica"), 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
"Manager" and together with SunAmerica, the "Managers") to assist in management
of one or more Portfolios.
Under Massachusetts law, shareholders of a trust, such as the Trust, in
certain circumstances may beheld personally liable as partners for the
obligations of the trust. However the Declaration of Trust, pursuant to which
the Trust was organized, contains an express disclaimer of shareholder liability
for acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification out of the Trust's property for any shareholder held personally
liable for any Trust obligation. Thus the risk of a shareholder being personally
liable as a partner for obligations of the Trust, is limited to the unlikely
circumstance in which the Trust itself would be unable to meet its obligations.
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 the Portfolios may
employ, which are described under "More Information About the Portfolios" in the
Prospectus, are discussed more fully below. Unless otherwise specified, each
Portfolio, including each Managed Component of the Multi-Managed Seasons
Portfolios, may invest in the following securities. The stated percentage
limitations are applied to an investment at the time of purchase unless
indicated otherwise.
WARRANTS. Each Portfolio except the Cash Management 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. 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.
CONVERTIBLE SECURITIES AND PREFERRED STOCKS. 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
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are convertible, but to a lesser degree. In recent years, convertibles have been
developed that 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. The Cash Management
Portfolio will not invest in convertible securities and preferred stocks.
INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the Prospectus,
each Portfolio except the WMC/Fixed Income component, Diversified Fixed Income
Portfolio and the Cash Management Portfolio may invest in the securities of
small companies having market capitalizations 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. If other
investment companies and investors who invest in such issuers trade the same
securities when a Portfolio attempts to dispose of its holdings, the Portfolio
may receive lower prices than might otherwise be obtained.
Companies with 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. 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 Seasons Portfolio may invest up to 15% of its
total assets, the Large Cap Growth Portfolio, the Large Cap Composite Portfolio,
the Large Cap Value Portfolio, the Mid Cap Growth Portfolio, the Mid Cap Value
Portfolio, the Small Cap Portfolio and the Diversified Fixed Income Portfolio
may invest up to 30% of total assets, and the International Equity Portfolio and
the Janus/Growth and SunAmerica/ Aggressive Growth components of each
Multi-Managed Seasons Portfolio may invest without
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limitation in foreign securities. The Cash Management Portfolio may invest in
U.S. dollar denominated securities of foreign issuers that meet the quality and
maturity requirements applicable to the Portfolio. 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 also invest in securities of foreign issuers in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts or other similar securities representing interests in
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 that
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 that 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. Each Portfolio except the Cash Management Portfolio may
invest, and the WMC/Fixed Income component may invest without limitation, in
U.S. dollar denominated foreign debt securities. In addition, the Portfolios may
invest in securities denominated in other currency "baskets."
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Investments in foreign securities, including securities of emerging market
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (E.G.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
than the U.S.; increased possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; the imposition of foreign taxes on investment income
derived from such countries and differences (which may be favorable or
unfavorable) between the U.S. economy and foreign economies. The Cash Management
Portfolio will not invest in emerging markets.
Each Portfolio except the Cash Management 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.
PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS"). The Stock Portfolio, Asset
Allocation: Diversified Growth Portfolio, Large Cap Growth Portfolio, Large Cap
Composite Portfolio, Mid Cap Value Portfolio, Small Cap Portfolio, International
Equity Portfolio, Diversified Fixed Income and the Multi-Managed Seasons
Portfolios, may invest in PFICs, which are any foreign corporations that
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.
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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.
The SunAmerica/Aggressive Growth component, the Stock Portfolio, and the
Mid Cap Growth Portfolio may invest in debt securities rated as low as "BBB" by
Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's"), "Baa" by Moody's Investors Service, Inc.
("Moody's"), or unrated securities determined by the Manager to be of comparable
quality.
The Janus/Growth component, the Large-Cap Growth Portfolio and the
International Equity Portfolio may invest up to 35% of net assets in
high-yield/high-risk securities rated below Baa by Moody's or BBB by Standard &
Poor's, or unrated bonds determined by the Manager to be of comparable quality.
The SunAmerica/Balanced component may invest up to 10% of total assets in
securities rated as low as BBB (or determined by the Manager to be of equivalent
quality if unrated).
The WMC/Fixed Income component may invest up to 20% of its assets in
securities rated below Baa by Moody's or BBB by Standard & Poor's and no more
than 10% of its assets in bonds rated as low as C by Moody's or D by Standard &
Poor's (or, in each case, if not rated, determined by the Manager to be of
comparable quality).
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The Large Cap Composite Portfolio (up to 15%) and the Large Cap Value
Portfolio (up to 10%) may invest in debt securities rated below investment grade
(I.E., below "BBB" by Standard & Poor's or below "Baa" by Moody's) or, if
unrated, determined by the Manager to be of equivalent quality.
The Asset Allocation: Diversified Growth Portfolio may invest up to 20% of
its total assets in securities rated below Baa by Moody's or BBB by Standard &
Poor's, 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 Standard & Poor's (or, in each case,
if not rated, determined by the Manager to be of comparable quality)..
The Small-Cap Portfolio, the Mid-Cap Value Portfolio, and the Diversified
Fixed Income Portfolio may invest up to 20% of their respective assets in
securities rated below Baa by Moody's or BBB by Standard & Poor's and no more
than 10% of their respective assets in bonds rated as low as C by Moody's or D
by Standard & Poor's. In addition, the portion of the Large Cap Growth Portfolio
managed by Janus Capital Corporation ("Janus") may invest up to 35% of the
assets allocated to it in securities rated below Baa by Moody's or BBB by
Standard & Poors; and the portion of the Large Cap Growth and Mid Cap Value
Portfolios allocated to Goldman Sachs Asset Management and the portion of the
International Equity Portfolio allocated to Goldman Sachs Asset
Management-International may invest no more than 10% of the assets allocated to
it in bonds rated as low as C by Moody's or D By Standard & Poors. In each case,
securities that are not rated will be subject to the percentage limitations of
securities determined by the Manager to be of comparable quality as stated
herein.
The Cash Management Portfolio currently invests only in instruments rated
in the highest rating category by Moody's and Standard & Poor's or in
instruments issued, guaranteed or insured by the U.S.
government, its agencies or instrumentalities.
U.S. GOVERNMENT SECURITIES. Each 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. 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.
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 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 Farmer's Home
Administration ("FMHA") and the Export-Import Bank are backed by the full faith
and credit of the United States.
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Each Portfolio may also invest in securities issued by U.S. government
instrumentalities and certain federal agencies that 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 ("FNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Land Banks, Central Bank for
Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan Banks. 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. Each 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. The U.S. government or the
issuing agency guarantees the payment of interest and principal of these
securities. However, the guarantees do not extend to the securities' yield or
value, which are likely to vary inversely with fluctuations in interest rates.
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. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through certificates.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. Thus, the
actual life of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally result from
the sale of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by a wide range
of economic, demographic and social factors and, accordingly, it is not possible
to predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Portfolio to differ from the yield calculated on the
basis of the expected average life of the pool.
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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 are mortgage-backed securities
that 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 FMHA, or guaranteed by the Veterans
Administration. The GNMA guarantee is authorized by the National Housing
Act and is backed by the full faith and credit of the United States. The
GNMA is also empowered to borrow without limitation from the U.S. Treasury
if necessary to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosure
will usually result in the return of the greater part of principal
investment long before the maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee, except to the extent that a Portfolio has purchased the
certificates at a premium in the secondary market.
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FHLMC CERTIFICATES. The 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 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.
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Conventional mortgage pools generally offer a higher rate of interest
than government and government-related pools because of the absence of any
direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loans, title, pool and hazard insurance and letters of credit. The
insurance and guarantees may be issued by private insurers and mortgage
poolers. Although the market for such securities is becoming increasingly
liquid, mortgage-related securities issued by private organizations may not
be readily marketable.
The Asset Allocation: Diversified Growth Portfolio, the
SunAmerica/Balanced and WMC/Fixed Income components of the Multi-Managed
Seasons Portfolios, and the Large Cap Growth Portfolio, the Large Cap
Composite Portfolio, the Large Cap Value Portfolio, the Mid Cap Growth
Portfolio, the Mid Cap Value Portfolio, the Small Cap Portfolio, the
International Equity Portfolio and the Diversified Fixed Income Portfolio
may invest in another type of mortgage-backed security, a collateralized
mortgage obligation ("CMO"). CMOs are fully collateralized bonds that 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 that 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.
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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 accrue interest at a specified rate only until all
other certificates having an earlier final distribution date have been
retired and are converted thereafter to an interest-paying security, and
planned amortization class ("PAC") certificates, which are parallel pay
CMOs which generally require that specified amounts of principal be applied
on each payment date to one or more classes of CMOs (the "PAC
Certificates"), even though all other principal payments and prepayments of
the mortgage assets are then required to be applied to one or more other
classes of the certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created to
absorb most of the volatility in the underlying mortgage assets. These
tranches tend to have market prices and yields that 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 Seasons
Portfolios and each of the Season's Select Portfolios except the Cash
Management Portfolio 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 Portfolio invests. A common type
of stripped mortgage-backed security has one class receiving some of the
interest and all or most of the principal (the "principal only" class) from
the mortgage pool, while the other class will receive all or most of the
interest (the "interest only" class). The yield to maturity on an interest
only class is extremely sensitive not only to changes in prevailing
interest rates, but also to the rate of principal payments, including
principal prepayments, on the underlying pool of mortgage assets, and a
rapid rate of principal payment may have a material adverse effect on a
Portfolio's yield. While interest-only and principal-only securities are
generally regarded as being illiquid, such securities may be deemed to be
liquid if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a
Portfolio's net asset value per share. Only government interest-only and
principal-only securities backed by fixed-rate mortgages and determined to
be liquid under guidelines and standards established by the Trustees may be
considered liquid securities not subject to a Portfolio's limitation on
investments in illiquid securities.
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CERTAIN RISK FACTORS RELATING TO HIGH-YIELD BONDS. As described above, the
WMC/Fixed Income and Janus/Growth components of the Multi-Managed Seasons
Portfolios and the Asset Allocation: Diversified Growth Portfolio, the Large Cap
Growth Portfolio, the Large Cap Composite Portfolio, the Large Cap Value
Portfolio, the Mid Cap Value Portfolio, the Small Cap Portfolio, the
International Equity Portfolio and the Diversified Fixed Income 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
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.
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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 that 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.
ZERO COUPON BONDS, STEP-COUPON BONDS, DEFERRED INTEREST BONDS AND PIK
BONDS. Fixed income securities in which each Portfolio except the Cash
Management 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
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 that 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 that 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.
B-16
<PAGE>
LOAN PARTICIPATIONS. The WMC/Fixed Income component, the Janus/Growth
Component and the Large Cap Growth Portfolio, the Large Cap Composite Portfolio,
the Large Cap Value Portfolio, the Mid Cap Growth Portfolio, the Mid Cap Value
Portfolio, the Small Cap Portfolio, the International Equity Portfolio and the
Diversified Fixed-Income Portfolio may invest in loan participations. Loan
participations are loans sold by the lending bank to an investor. The loan
participant borrower may be a company with highly-rated commercial paper that
finds it can obtain cheaper funding through a loan participation than with
commercial paper and can also increase the company's name recognition in the
capital markets. Loan participations often generate greater yield than
commercial paper.
The borrower of the underlying loan will be deemed to be the issuer except
to the extent the Portfolio derives its rights from the intermediary bank that
sold the loan participations. Because loan participations are undivided
interests in a loan made by the issuing bank, the Portfolio may not have the
right to proceed against the loan participations borrower without the consent of
other holders of the loan participations. In addition, loan participations will
be treated as illiquid if, in the judgment of the Manager, they can not be sold
within seven days.
SHORT-TERM DEBT SECURITIES. In addition to its primary investments, each
Portfolio may also invest up to 25% of its total assets, except that the Cash
Management Portfolio and Diversified Fixed Income Portfolio may invest without
limitation, in both U.S. and non-U.S. dollar denominated money market
instruments for reasons that may include (a) liquidity purposes (to meet
redemptions and expenses) or (b) to 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 Multi-Managed
Seasons Portfolios as described in the Prospectus 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 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. In addition, Janus
may invest idle cash of the Janus/Growth component of each Multi-Managed
Seasons Portfolio and their portion of the Large Cap Growth Portfolio in
money market mutual funds that it manages.
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<PAGE>
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. The Cash Management Portfolio, the Janus/Growth Component of each
Multi-Managed Seasons Portfolio and Janus' portion of the Large Cap Growth
Portfolio may also invest in obligations issued by commercial banks with
total assets of less than $1 billion if the principal amount of these
obligations owned by the Cash Management Portfolio is fully insured by the
Federal Deposit Insurance Corporation ("FDIC").
SAVINGS ASSOCIATION OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits) issued by mutual savings banks or savings
and loan associations. The Cash Management Portfolio, the Janus/Growth
Component of each Multi-Managed Seasons Portfolio and Janus' portion of the
Large Cap Growth Portfolio managed by Janus may also invest in obligations
issued by mutual savings banks or savings and loan associations with total
assets of less than $1 billion if the principal amount of these obligations
owned by the Cash Management Portfolio is fully insured by the FDIC.
COMMERCIAL PAPER - Short-term notes (up to 12 months) issued by
corporations or governmental bodies, including variable amount master
demand notes.
The Cash Management Portfolio may purchase commercial paper only if
judged by SunAmerica to be of suitable investment quality. This includes
commercial paper that is (a) rated in the two highest categories by Standard &
Poor's and by Moody's, or (b) other commercial paper deemed on the basis of the
issuer's creditworthiness to be of a quality appropriate for the Cash Management
Portfolio. (No more than 5% of the Cash Management Portfolio's assets may be
invested in commercial paper in the second highest rating category; no more than
the greater of 1% of the Cash Management Portfolio's assets or $1 million may be
invested in such securities of any one issuer.) See "Description of Commercial
Paper and Bond Ratings" for a description of the ratings. The Cash Management
Portfolio will not purchase commercial paper described in (b) above if such
paper would in the aggregate exceed 15% of its total assets after such purchase.
The commercial paper in which the Cash Management Portfolio (and other
Portfolios) may invest includes variable amount master demand notes.
Variable amount master demand notes permit each 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
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<PAGE>
or decrease the extent of their participation. The Cash Management Portfolio's
investments in these instruments are limited to those that have a demand feature
enabling the Cash Management Portfolio unconditionally to receive the amount
invested from the issuer upon seven or fewer days' notice. Generally, the Cash
Management Portfolio attempts to invest in instruments having a one-day notice
provision. In connection with master demand note arrangements, the Manager,
subject to the direction of the Trustees, monitors on an ongoing basis, the
earning power, cash flow and other liquidity ratios of the borrower, and its
ability to pay principal and interest on demand. The Manager also considers the
extent to which the variable amount master demand notes are backed by bank
letters of credit. These notes generally are not rated by Moody's or Standard &
Poor's and a Portfolio may invest in them only if it is determined that at the
time of investment the notes are of comparable quality to the other commercial
paper in which a 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 (397 days with
respect to the Cash Management Portfolio) or less. These obligations
originally may have been issued with maturities in excess of such period.
The Cash Management Portfolio may invest only in corporate bonds or notes
of issuers having outstanding short-term securities rated in the top two
rating categories by Standard & Poor's and Moody's. See "Description of
Commercial Paper and Bond Ratings" for description of investment-grade
ratings by Standard & Poor's and Moody's.
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 more frequently) have maturities in excess of one
year, they are also considered short-term debt securities. See "U.S.
Government Securities," above.
REPURCHASE AGREEMENTS. A Portfolio will enter into repurchase agreements
involving only 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. 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 that 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 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
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<PAGE>
the collateral. 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% (10% with respect to the Cash Management Portfolio) 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.
DIVERSIFICATION. Each Multi-Managed Seasons and Multi-Managed Seasons
Select Portfolio except for the Diversified Fixed Income Portfolio is classified
as "non-diversified" for the purposes of the 1940 Act, which means that they are
not limited by the 1940 Act with regard to the portion of assets that may be
invested in the securities of a single issuer. To the extent any such Portfolio
makes investments in excess of 5% of its assets in the securities of a
particular issuer, its exposure to the risks associated with that issuer is
increased.
DERIVATIVES STRATEGIES. Each Portfolio except the Cash Management 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.
In addition, the Portfolio could experience capital losses which might
cause previously distributed short-term capital gains to be re-characterized as
a non-taxable return of capital to shareholders.
Each Portfolio except the Cash Management Portfolio may also write put
options ("puts"), which give the holder of the option the right to sell the
underlying security to the Portfolio at the stated exercise price. A Portfolio
will receive a premium for writing a put option that increases the Portfolio's
return. A Portfolio writes only covered put options, which means that so long as
the Portfolio is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash or liquid securities denominated
in U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. Puts
on Futures (defined below) will be considered "covered" if the Portfolio owns an
option to sell that Futures contract having a strike price equal to or greater
than the strike price of the "covered" option, or if the Portfolio for the term
of the option segregates cash or other liquid
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<PAGE>
assets at all times equal in value to the exercise price of the put (less any
initial margin deposited by the Portfolio with its custodian with respect to
such option).
Primarily for hedging purposes, and from time to time for income
enhancement, each Portfolio except the Cash Management 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
Seasons Portfolio and the Diversified Fixed Income 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). 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 be listed on either (1) a
national securities or commodities exchange or (2) over-the-counter markets.
However, each Portfolio except the Cash Management 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 such a Portfolio to engage in such transactions
may be limited. Derivatives may be used to attempt to: (i) protect against
possible declines in the market value of a Portfolio's portfolio resulting from
downward trends in the equity and debt securities markets (generally due to a
rise in interest rates); (ii) protect a Portfolio's unrealized gains in the
value of its equity and debt securities that 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.
Each Portfolio except the Cash Management 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.
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<PAGE>
A Portfolio's use of 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 that 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 derivatives the
Portfolios may use is provided below.
OPTIONS
OPTIONS ON SECURITIES. As noted above, each Portfolio except the Cash
Management Portfolio may write and purchase call and put options (including, in
the case of the Multi-Managed Seasons Portfolios and the Diversified Fixed
Income Portfolio, 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 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.
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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.
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<PAGE>
When writing put options on securities, to secure its obligation to pay for
the underlying security, a Portfolio will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
A Portfolio therefore forgoes the opportunity of investing the segregated assets
or writing calls against those assets. As long as the obligation of a Portfolio
as the put writer continues, it may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring a Portfolio to take
delivery of the underlying security against payment of the exercise price. A
Portfolio has no control over when it may be required to purchase the underlying
security, since it may be assigned an exercise notice at any time prior to the
termination of its obligation as the writer of the put. This obligation
terminates upon expiration of the put, or such earlier time at which a Portfolio
effects a closing purchase transaction by purchasing a put of the same series as
that previously sold. Once a Portfolio has been assigned an exercise notice, it
is thereafter not allowed to effect a closing purchase transaction.
Each Portfolio except the Cash Management Portfolio may use spread
transactions for any lawful purpose consistent with the Portfolio's investment
objective. 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 quality spreads, I.E.,
the yield spread between high quality and lower quality securities. Such
protection is provided only during the life of the spread option.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio except the Cash Management
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 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.
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As with other kinds of option transactions, the writing of an option on
currency will constitute only a partial 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.
OPTIONS ON SECURITIES INDICES. As noted above, each Portfolio except the
Cash Management 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.
FUTURES AND OPTIONS ON FUTURES
FUTURES. Upon entering into a Futures transaction, a Portfolio, except the
Cash Management 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
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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.
As noted above, each Portfolio except the Cash Management 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 except the Cash Management 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.
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<PAGE>
Conversely, a 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, each Portfolio except the Cash
Management Portfolio 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 that provides a
partial hedge against any increase in the price of securities the Portfolio
intends to purchase. If a put or call option a Portfolio has written is
exercised, the Portfolio will incur a loss, which will be reduced by the amount
of the premium it receives. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of its
Options on Futures positions, a Portfolio's losses from exercised Options on
Futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
A Portfolio may purchase Options on Futures for hedging purposes, instead
of purchasing or selling the underlying Futures contract. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, a
Portfolio could, in lieu of selling a Futures contract, purchase put options
thereon. In the event that such decrease occurs, it may be offset, in whole or
part, by a profit on the option. If the market decline does not occur, the
Portfolio will suffer a loss equal to the price of the put. Where it is
projected that the value of securities to be acquired by a Portfolio will
increase prior to acquisition, due to a market advance or changes in interest or
exchange rates, a Portfolio could purchase call Options on Futures, rather than
purchasing the underlying Futures contract. If the market advances, the
increased cost of securities to be purchased may be offset by a profit on the
call. However, if the market declines, the Portfolio will suffer a loss equal to
the price of the call but the securities the Portfolio intends to purchase may
be less expensive.
B-27
<PAGE>
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. The Cash
Management Portfolio will not engage in Forward Contracts. 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 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, except the Cash Management
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").
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<PAGE>
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 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.
B-29
<PAGE>
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 DERIVATIVES 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 that 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 result in 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 that 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 that 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 derivatives 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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<PAGE>
REGULATORY ASPECTS OF DERIVATIVES
Each Portfolio that utilizes such instruments 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
that 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 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 DERIVATIVES
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. There is also 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
B-31
<PAGE>
requirements, investors may close Futures contracts through offsetting
transactions, which could distort the normal relationship between the cash and
Futures markets. Second, the liquidity of the Futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the Futures markets could be reduced, thus producing distortion. Third, from
the point-of-view of speculators, the deposit requirements in the Futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the Futures markets may
cause temporary price distortions.
If a Portfolio establishes 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
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 (with respect only to "restricted" securities, 10% in the
case of the Cash Management Portfolio), determined as of the date of purchase,
may be invested in illiquid securities including repurchase agreements that 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 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 that 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," as described below).
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<PAGE>
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.
For example, restricted securities that 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, 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 that by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. The Manager will monitor the
liquidity of such restricted securities subject to the supervision of the
Trustees. In reaching liquidity decisions the Manager will consider, INTER ALIA,
pursuant to guidelines and procedures established by the Trustees, the following
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades
(E.G., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer). 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.
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 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 (10%, with respect to
restricted securities, in the case of the Cash Management Portfolio) 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.
B-33
<PAGE>
SHORT SALES. Each of the Multi-Managed Growth and Moderate Growth
Portfolios, through the SunAmerica/Aggressive Growth component, and each of the
Seasons Select Portfolios except the Cash Management Portfolio 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 Portfolio must
borrow the security to make delivery to the buyer. The 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 Portfolio. Until the security is
replaced, the Portfolio is required to pay to the lender any dividends or
interest that accrue during the period of the loan. To borrow the security, the
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 Portfolio replaces a borrowed security, the
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 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 Portfolio
replaces the borrowed security. A 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 Portfolio may be required to
pay in connection with a short sale. Each Portfolio except the Cash Management
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.
HYBRID INSTRUMENTS; INDEXED/STRUCTURED SECURITIES. Hybrid Instruments,
including indexed or structured securities, combine the elements of futures
contracts or options with those of debt, preferred equity or a depository
instrument. The Cash Management Portfolio will not invest in these 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.
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Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, the Portfolio could limit the downside risk of the security
by establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest rates were
to rise significantly. The purpose of this arrangement, known as a structured
security with an embedded put option, would be to give the Portfolio the desired
European bond exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions costs. Of course, there is no guarantee that the
strategy will be successful and the Portfolio could lose money if, for 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 unrelated to the operations or credit quality of
the issuer of the Hybrid Instrument, 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.
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Hybrid Instruments may also carry liquidity risk since the instruments are
often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. Under certain conditions, the redemption (or sale)
value of such an investment could be zero. 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 counterparty or issuer of the Hybrid Instrument would be
an additional risk factor 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, a Portfolio that so invests 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.)
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To the extent a Portfolio engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Portfolio enters into such transactions 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. One form of when-issued
or delayed delivery security that the Asset Allocation: Diversified Growth
Portfolio, the WMC/Fixed Income component of each Multi-Managed Portfolio and
each Seasons Select 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, with no definitive maturity date. The
actual principal amount and maturity date will be determined upon settlement
date.
INVERSE FLOATERS are leveraged inverse floating rate debt instruments. The
interest rate on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of a
Portfolio's 15% limitation on investments in such securities.
BORROWING. As a matter of fundamental policy each Portfolio is
authorized to borrow up to 33 1/3% (and the Cash Management Portfolio up to
5%) of its total assets for temporary or emergency purposes.
In seeking to enhance investment performance, each of the Multi-Managed
Growth and Moderate Growth Portfolios, through its SunAmerica/Aggressive Growth
component, and the Large Cap Growth Portfolio, the Large Cap Composite
Portfolio, the Large Cap Value Portfolio, the Mid Cap Growth Portfolio, the Mid
Cap Value Portfolio, the Small Cap Portfolio, the International Equity Portfolio
and the Diversified Fixed Income Portfolio 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 these Portfolios in an amount greater
than would otherwise be the case when the market values of the securities
purchased through borrowing increase. In the event the return on an investment
of borrowed monies does not fully recover the costs of such borrowing, the value
of the Portfolio's assets would be reduced by a greater amount than would
otherwise be the case. The effect of
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leverage will therefore tend to magnify the gains or losses to the Portfolio as
a result of investing the borrowed monies. During periods of substantial
borrowings, the value of the Portfolio's assets would be reduced due to the
added expense of interest on borrowed monies. Each of such 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, with respect to the Multi-Managed Seasons Portfolios
such limitation will be calculated with respect to the net assets allocated to
the SunAmerica/Aggressive Growth component of such Multi-Managed Seasons
Portfolio. The time and extent to which the component or Portfolios may employ
leverage will be determined by the respective 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.
Any such borrowing will be made pursuant to the requirements of the 1940
Act and will be made only to the extent that the value of each Portfolio's
assets less its liabilities, other than borrowings, is equal to at least 300% of
all borrowings including the proposed borrowing. If the value of a Portfolio's
assets, so computed, should fail to meet the 300% asset coverage requirement,
the Portfolio is required, within three business days, to reduce its bank debt
to the extent necessary to meet such requirement and may have to sell a portion
of its investments at a time when independent investment judgment would not
dictate such sale. Interest on money borrowed is an expense the Portfolio would
not otherwise incur, so that it may have little or no net investment income
during periods of substantial borrowings. Since substantially all of a
Portfolio's assets fluctuate in value, but borrowing obligations are fixed when
the Portfolio has outstanding borrowings, the net asset value per share of a
Portfolio correspondingly will tend to increase and decrease more when the
Portfolio's assets increase or decrease in value than would otherwise be the
case. A Portfolio's policy regarding use of leverage is a fundamental policy,
which may not be changed without approval of the shareholders of the Portfolio.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Portfolio except the Cash Management 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
high-quality short-term debt securities, including repurchase agreements. 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 be made only
to firms deemed by the Manager to be creditworthy. On termination of the
loan, the borrower is required to return the securities to a Portfolio; and
any gain or loss in the market price of the loaned security during the loan
would inure to the Portfolio. Each such 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.
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Since voting or consent rights accompany loaned securities pass to the
borrower, each such 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 that 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 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 except the Cash Management 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 that matures on or before the forward settlement date of the
dollar roll transaction. A Portfolio will enter only 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 that the Portfolio is required to
repurchase may be worth less than an instrument that 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.
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STANDBY COMMITMENTS. Standby commitments are put options that entitle
holders to same day settlement at an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A Portfolio may acquire standby commitments to enhance the liquidity
of portfolio securities, but only when the issuers of the commitments present
minimal risk of default. Ordinarily, the Portfolio may not transfer a standby
commitment to a third party, although it could sell the underlying municipal
security to a third party at any time. A Portfolio may purchase standby
commitments separate from or in conjunction with the purchase of securities
subject to such commitments. In the latter case, the Portfolio would pay a
higher price for the securities acquired, thus reducing their yield to maturity.
Standby commitments will not affect the dollar-weighted average maturity of the
Portfolio, or the valuation of the securities underlying the commitments.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. The Manager may
rely upon its evaluation of a bank's credit in determining whether to support an
instrument supported by a letter of credit. Standby commitments are subject to
certain risks, including the ability of issuers of standby commitments to pay
for securities at the time the commitments are exercised; the fact that standby
commitments are not marketable by the Portfolios; and the possibility that the
maturities of the underlying securities may be different from those of the
commitments.
INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, COLLARS AND FLOORS. In order to
protect the value of 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 except the Cash Management
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
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 enter into interest-rate swaps only 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. Interestrate 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 that
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, SunAmerica 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.
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The Portfolio will also establish and maintain such segregated accounts with
respect to its total obligations under any interest-rate swaps that are not
entered into on a net basis and with respect to any interest-rate caps, collars
and floors that are written by the Portfolio.
A Portfolio will enter into these transactions only with banks and
recognized securities dealers believed by the Manager to present minimal credit
risk in accordance with guidelines established by the Board of Trustees. If
there is a default by the other party to such a transaction, the Portfolio will
have to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps. The Large Cap Growth Portfolio,
Mid Cap Value Portfolio and International Equity Portfolio may also engage in
equity swaps, which are exchanges of the total return on a stock for the total
return on another asset, usually a diversified equity or fixed income index.
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.
SPECIAL SITUATIONS. Each Portfolio may invest, subject to its particular
investment limitations described above, up to 25% of its assets in "special
situations." A "special situation" arises when, in the opinion of a Manager, the
securities of a particular issuer will be recognized and appreciated 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.
Investments 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.
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FUTURE DEVELOPMENTS. Each Portfolio may invest in securities and other
instruments that 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 and SAI, as appropriate, will be amended
or supplemented as appropriate to discuss any such new investments.
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER RATINGS. Moody's employs the designations "Prime-1,"
"Prime-2" and "Prime-3" to indicate commercial paper having the highest capacity
for timely repayment. Issuers rated Prime-1 have a superior capacity for
repayment of short-term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. Issues rated
Prime-2 have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
Issuers rated Prime-3 have an acceptable capacity for repayment of
short-term promissory obligations. The effect of industry characteristics and
market composition may be more pronounced. Variability in earning and
profitability may result in changes in level of debt protection measurements and
the requirement for relatively high financial leverage. Adequate alternate
liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
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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 that 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 that exist with the issuer; and (8) recognition by management of
obligations that 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 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.
B-43
<PAGE>
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. "B"- Securities posses speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions. "C"- Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment. 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. "TBW-3"-This designation represents
Thomson BankWatch's lowest investment-grade category and indicates that while
the obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate. "TBW-4"-This designation
represents Thomson BankWatch's lowest rating category and indicates that the
obligation is regarded as non-investment grade and therefore speculative.
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
B-44
<PAGE>
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present that make the long-term risks appear somewhat greater. A
- - Upper medium grade obligations. These bonds possess many favorable investment
attributes. Factors giving security to principal and interest are considered
adequate, but elements may be present that suggest a susceptibility to
impairment sometime in the future. Baa - Medium grade obligations. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics
and, in fact, have speculative characteristics as well. Ba - Have speculative
elements; future cannot be considered as well assured. The protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Bonds in this class
are characterized by uncertainty of position. B - Generally lack characteristics
of the desirable investment assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small. Caa - Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest. Ca Speculative in a
high degree; often in default or have other marked shortcomings. C - Lowest
rated class of bonds; can be regarded as having extremely poor prospects of ever
attaining any real investment standings.
Moody's may apply numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking 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. The obligor's 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.
B-45
<PAGE>
Plus (+) or minus (-): The ratings of AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within these ratings
categories.
BankWatch rates the long-term debt securities issued by various entities
either AAA or AA. AAA is the highest category, which indicates the ability to
repay principal and interest on a timely basis is very high. AA is the second
highest category, which indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk versus issues rated in
the highest category. Ratings in the long-term debt categories may include a
plus (+) or minus (-) designation, which indicates where within the respective
category the issue is placed.
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,
the Stock Portfolio, the Diversified Fixed Income Portfolio and the Cash
Management Portfolio, invest more than 5% of the Portfolio's 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.
2. With respect to the Asset Allocation: Diversified Growth Portfolio,
the Stock Portfolio, the Diversified Fixed Income Portfolio and the Cash
Management Portfolio, as to 75% of its total assets purchase more than 10%
of the outstanding voting securities of any one issuer.
3. Invest more than 25% of the Portfolio's total assets in the securities
of issuers in the same industry. Obligations of the U.S. government, its
agencies and instrumentalities are not subject to this 25% limitation on
industry concentration. In addition, the Cash Management Portfolio may, if
deemed advisable, invest more than 25% of its assets in the obligations of
domestic commercial banks. The gas, electric, water and telephone
businesses will be considered separate industries.
B-46
<PAGE>
4. Invest in real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts,
that 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 each 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; (c) the lending of its portfolio
securities; and (d) as otherwise permitted by exemptive order of the SEC.
7. Borrow money, except that (i) each Portfolio may borrow in amounts up
to 33 1/3% (5% in the case of the Cash Management Portfolio) 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, and the Large Cap Growth Portfolio, the Large Cap
Composite Portfolio, the Large Cap Value Portfolio, the Mid Cap Growth
Portfolio, the Mid Cap Value Portfolio, the Small Cap Portfolio, the
International Equity Portfolio and the Diversified Fixed Income Portfolio
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 Seasons 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 and dollar rolls, lend its portfolio securities and borrow
money, 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-47
<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; (ii) that Janus and T. Rowe
Price may invest uninvested cash balances of their respective component of
each 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%
(10% in the case of the Cash Management Portfolio) 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-48
<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 One
SunAmerica Center, Los Angeles, California 90067-6022.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position with the Trust During Past Five Years
- --------------------- ----------------------- ----------------------
<S> <C> <C>
James K. Hunt, *47 Trustee, Chairman and Executive Vice President, SunAmerica
President Investments, Inc. (1993 - Present);
President, SunAmerica Corporate Finance,
(since January 1994); Trustee, Chairman
and President, SunAmerica Series Trust
(since 1994).
Monica C. Lozano, 42 Trustee Associate Publisher, LA OPINION
3257 Purdue Avenue (newspaper publishing concern) (since
Los Angeles, CA 90066 1995); Director, First Interstate Bank
of California (1994-1996); Editor, LA
OPINION (1991-1995); Trustee, Anchor
Pathway Fund and SunAmerica Series Trust
(since 1999).
Allan L. Sher, 67 Trustee Retired; Trustee, Anchor Pathway Fund
and SunAmerica Series Trust.
William M. Wardlaw, 52 Trustee Principal, Freeman Spogli & Co.
(investment banking) (1988-Present);
Vice President and Director, MCC
International Holdings (cable) (since
April 1997); Trustee, Anchor Pathway
Fund and SunAmerica Series Trust.
B-49
<PAGE>
<CAPTION>
Principal Occupations
Name, Age and Address Position with the Trust During Past Five Years
- --------------------- ----------------------- ----------------------
<S> <C> <C>
Scott L. Robinson, 53 Senior Vice President, Senior Vice President and
Treasurer and Controller, 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, 42 Vice President, Senior Vice President (since
Counsel and Secretary November 1995), 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, 34 Vice President and Senior Vice President, SunAmerica
The SunAmerica Center Assistant Treasurer (since April 1997); Treasurer,
733 Third Avenue SunAmerica Mutual Funds (since
New York, NY 10017-3204 February 1996), Anchor Series
Trust (since 1994) and Style Select
Series, Inc. (since 1996); Vice
President and Assistant Treasurer,
SunAmerica Series Trust and Anchor
Pathway Fund (since 1994); formerly,
Vice President, SunAmerica (1994-1997);
Controller, SunAmerica Mutual Funds and
Anchor Series Trust (March 1993 to
February 1996); Assistant Controller,
SunAmerica Mutual Funds and Anchor
Series Trust (1990-1993); joined
SunAmerica in 1990.
B-50
<PAGE>
<CAPTION>
Principal Occupations
Name, Age and Address Position with the Trust During Past Five Years
- --------------------- ----------------------- ----------------------
<S> <C> <C>
Robert M. Zakem, 41 Vice President and Vice President and Assistant
The SunAmerica Center Assistant Secretary Secretary, SunAmerica Series Trust
733 Third Avenue (since April 1993) and Anchor
New York, New York 10017-3204 Pathway Fund (since 1993);
Secretary and Chief Compliance
Officer, SunAmerica Mutual Funds and
Anchor Series Trust (since 1993) and
Style Select Series (since 1996); Senior
Vice President, General Counsel and
Assistant Sercretary, SunAmerica (since
April 1993); Executive Vice President,
General Counsel and Director, SunAmerica
Capital Services, Inc. (since February
1993); Vice President, General Counsel
and Assistant Secretary, SunAmerica Fund
Services, Inc. (since January 1994).
</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 Trustees of the Trust are responsible for the overall supervision
of the operation of the Trust and each Fund and perform various duties imposed
on trustees of investment companies by the 1940 Act and under the Trust's
Declaration of Trust.
As of June 30, 1999, the officers and Trustees as a group owned an
aggregate of less than 1% of the outstanding shares of each Portfolio of the
Trust.
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.
B-51
<PAGE>
The following table sets forth information summarizing the compensation of
each of the Trustees for his services as Trustee for the fiscal year ended March
31, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS FROM REGISTRANT AND
COMPENSATION FROM ACCRUED AS PART OF FUND COMPLEX PAID
TRUSTEE REGISTRANT FUND EXPENSES TO TRUSTEES*
<S> <C> <C> <C>
Richard D. Barger+ $1,500 - $18,000
Monica C. Lozano** $500 - $6,000
Norman J. Metcalfe+ $1,500 - $18,000
Allan L. Sher $2,000 - $24,000
William M. Wardlaw $1,500 - $21,750
</TABLE>
* Information is for the three investment companies in the complex (Anchor
Pathway Fund, SunAmerica Series Trust and the Trust) that pay fees to the
Trustees.
** Ms. Lozano became a Trustee as of January 1, 1999.
+ Messrs. Barger and Metcalfe served as Trustees until October, 1998.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Trust, on behalf of each Portfolio, entered into an Investment Advisory
and Management Agreement (the "Agreement") with SunAmerica to handle the
management of the Trust and its day-to-day affairs. The Adviser is a
wholly-owned subsidiary of American International Group, Inc. ("AIG"), the
leading U.S.-based international insurance organization.
AIG, a Delaware corporation, is a holding company which through its
subsidiaries is primarily engaged in a broad range of insurance and insurance
related activities and financial services in the United States and abroad. AIG,
through its subsidiaries, is also engaged in a range of financial services
activities. AIG's asset management operations are carried out primarily by AIG
Global Investment Group, Inc., a direct wholly owned subsidiary of AIG, and its
affiliates (collectively, "AIG Global"). AIG Global manages the investment
portfolios of various AIG subsidiaries, as well as third party assets, and is
responsible for product design and origination, marketing and distribution of
third party asset management products, including offshore and private investment
funds and direct investment. As of June 30, 1998, AIG Global managed more than
$86
B-52
<PAGE>
billion of assets, of which approximately $10.8 billion represented assets
of unaffiliated third parties. AIG Capital Management Corp., an indirect
wholly-owned subsidiary of AIG Global Investment Group, Inc., serves as
investment adviser to The AIG Money Market Fund, a separate series of The
Advisors' Inner Circle Fund, a registered investment company. In addition, AIG
Global Investment Corp., an AIG Global group company, serves as the
sub-investment adviser to an unaffiliated registered investment company. AIG
companies do not otherwise provide investment advice to any registered
investment companies.
The Agreement provides that SunAmerica 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 SunAmerica'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 SunAmerica 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. Each Portfolio
pays its actual expenses for custodian services and a portion of the Custodian's
costs determined by the ratio of portfolio assets to the total assets of the
Trust, brokerage commissions or transaction costs, and registration fees.
Subject to supervision of the Board of Trustees, fees for independent
accountants, legal counsel, costs of reports of notices to shareholders will be
allocated based on the relative net assets of each Portfolio. With respect to
audit or legal fees clearly attributable to one Portfolio, they will be
assessed, subject to review by the Board of Trustees, against that Portfolio.
The Agreement, after initial approval with respect to each Portfolio,
continues in effect for a period of two years, in accordance with its terms,
unless terminated, and thereafter 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 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
Agreement provides that it may be terminated by either party without penalty
upon the specified written notice contained in the Agreement. The Agreement also
provides for automatic termination upon assignment.
B-53
<PAGE>
Under the terms of the Agreement, the Adviser is not liable to the Trust,
or to any other person, for any act or omission by it or for any losses
sustained by the Trust or its shareholders, except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
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 following annual rates:
<TABLE>
<CAPTION>
PORTFOLIO ADVISORY FEE (AS A PERCENTAGE OF ASSETS)
- --------- ----------------------------------------
<S> <C>
Multi-Managed Growth Portfolio 0.89%
Multi-Managed Moderate Growth Portfolio 0.85%
Multi-Managed Income/Equity Portfolio 0.81%
Multi-Managed Income Portfolio 0.77%
Asset Allocation: Diversified Growth Portfolio 0.85%
Stock Portfolio 0.85%
Large-Cap Growth Portfolio First $250 million 0.800%
Next $250 million 0.750%
Over $500 million 0.700%
Large-Cap Composite Portfolio First $250 million 0.800%
Next $250 million 0.750%
Over $500 million 0.700%
Large-Cap Value Portfolio First $250 million 0.800%
Next $250 million 0.750%
Over $500 million 0.700%
Mid-Cap Growth Portfolio First $250 million 0.850%
next $250 million 0.800%
Over $500 million 0.750%
B-54
<PAGE>
<CAPTION>
PORTFOLIO ADVISORY FEE (AS A PERCENTAGE OF ASSETS)
- --------- ----------------------------------------
<S> <C>
Mid-Cap Value Portfolio First $250 million 0.850%
next $250 million 0.800%
Over $500 million 0.750%
Small-Cap Portfolio First $250 million 0.850%
Next $250 million 0.800%
Over $500 million 0.750%
International Equity Portfolio 1.00%
Diversified Fixed Income Portfolio First $200 million 0.700%
Next $200 million 0.650%
Over $400 million 0.600%
Cash Management Portfolio First $100 million 0.550%
Next $200 million 0.50%
Thereafter 0.45%
</TABLE>
The term "Assets" means the average daily net assets of each Portfolio.
B-55
<PAGE>
The following table sets forth the total advisory fees received by
SunAmerica from each Portfolio pursuant to the Investment Advisory and
Management Agreement for the fiscal years ended March 31, 1999 and 1998.
ADVISORY FEES
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998*
<S> <C> <C>
Multi-Managed Growth Portfolio $463,084 $137,424
Multi-Managed Moderate Growth Portfolio $474,482 $135,378
Multi-Managed Income/Equity Portfolio $368,615 $101,740
Multi-Managed Income Portfolio $256,218 $76,624
Asset Allocation: Diversified Growth Portfolio $686,471 $208,284
Stock Portfolio $577,953 $178,227
Large Cap Growth Portfolio** $15,604 --
Large Cap Composite Portfolio** $12,969 --
Large Cap Value Portfolio** $15,063 --
Mid Cap Growth Portfolio** $15,925 --
Mid Cap Value Portfolio** $15,724 --
Small Cap Portfolio** $12,982 --
International Equity Portfolio** $18,659 --
Diversified Fixed Income Portfolio** $14,922 --
Cash Management Portfolio** $1,571 --
</TABLE>
* For the period April 15, 1997 (commencement of operations) through March 31,
1998.
** For the period February 8, 1999 (commencement of operations) through March
31, 1999.
SunAmerica 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 Portfolios' 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%, Stock
Portfolio 1.21%, Large Cap Growth Portfolio 1.10%, Large Cap Composite Portfolio
1.10%, Large Cap Value Portfolio 1.10%, Mid Cap
B-56
<PAGE>
Growth Portfolio 1.15%, Mid Cap Value Portfolio 1.15%, Small Cap Portfolio
1.15%, International Equity Portfolio 1.30%, Diversified Fixed Income Portfolio
1.00% and Cash Management Portfolio 0.85%. SunAmerica also may voluntarily waive
or reimburse additional amounts to increase the investment return to a
Portfolio's investors. SunAmerica may terminate all such waivers and/or
reimbursements at any time. Further, any waivers or reimbursements made by
SunAmerica 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 SunAmerica and remain in compliance with the foregoing
expense limitations.
For the fiscal year ended March 31, 1999, SunAmerica voluntarily waived
fees or reimbursed expenses, which are not included as part of the advisory fee
table as follows: Multi-Managed Income Portfolio - $2,279 and Asset Allocation:
Diversified Growth Portfolio - $6,931. For the period February 8, 1999
(commencement of operations) through March 31, 1999, SunAmerica voluntarily
waived fees or reimbursed expenses, which are not included as part of the
advisory fee table as follows: Large Cap Growth Portfolio - $19,982; Large Cap
Composite Portfolio- $19,982; Large Cap Value Portfolio - $ 19,982; Mid Cap
Growth Portfolio - $19,982; Mid Cap Value Portfolio - $19, 982; Small Cap
Portfolio - $19,982; International Equity Portfolio - $42,647; Diversified Fixed
Income Portfolio - $19,342; and Cash Management Portfolio - $21,642. Certain
Portfolios had recoupments for the fiscal year ended March 31, 1999, and such
recoupments, which are not included as part of the advisory fee table, were as
follows: Multi-Managed Growth Portfolio - $23,646; Multi-Managed Moderate Growth
Portfolio - $29,927; Multi-Managed Income/Equity Portfolio - $24,016 and Stock
Portfolio - $10,325.
SUBADVISORY AGREEMENTS
Bankers Trust Company ("Bankers Trust"), Goldman Sachs Asset Management
("GSAM"), Goldman Sachs Asset Management International ("GSAM-International"),
Janus Capital Corporation ("Janus"), Lord, Abbett & Co. ("Lord Abbett"), Putnam
Investment Management, Inc. ("Putnam"), T. Rowe Price Associates, Inc. ("T. Rowe
Price"), and Wellington Management Company, LLP ("Wellington") act as Managers
to certain of the Portfolios pursuant to various Subadvisory Agreements with
SunAmerica.
SunAmerica manages the CASH MANAGEMENT PORTFOLIO, the AGGRESSIVE GROWTH and
SUNAMERICA/BALANCED COMPONENTS of the Multi-Managed Seasons Portfolios, and
portions of the LARGE CAP COMPOSITE PORTFOLIO, the SMALL CAP PORTFOLIO, and the
DIVERSIFIED FIXED INCOME PORTFOLIO. SunAmerica may terminate any agreement with
a Manager without shareholder approval. Moreover, SunAmerica has received an
exemptive order from the Securities and Exchange Commission that permits
SunAmerica, subject to certain conditions, to enter into agreements relating to
the Funds with Managers approved by the Board of Directors without obtaining
shareholder approval. The exemptive order also permits SunAmerica, subject to
the approval of the Board but without shareholder approval, to employ new
Managers for new or existing Funds, change the terms of particular agreements
with Managers or continue the employment of existing Managers after
B-57
<PAGE>
events that would otherwise cause an automatic termination of a subadvisory
agreement. Shareholders will be notified of any Manager changes.
The following chart shows the Managers to each Portfolio and Managed
Component:
<TABLE>
<CAPTION>
PORTFOLIO MANAGEMENT ALLOCATED
PORTFOLIO AMONG THE FOLLOWING MANAGERS
<S> <C>
Multi-Managed Growth Portfolio Janus (through Janus/Growth component)
SunAmerica (through SunAmerica/Aggressive Growth
component and SunAmerica/Balanced component)
WMC (through WMC/Fixed Income component)
- ---------------------------------------------------------------------------------------------------
Multi-Managed Moderate Growth Janus (through Janus/Growth component)
Portfolio
SunAmerica (through SunAmerica/Aggressive Growth
component and SunAmerica/Balanced component)
WMC (through WMC/Fixed Income component)
- ---------------------------------------------------------------------------------------------------
Multi-Managed Income/Equity Janus (through Janus/Growth component)
Portfolio
SunAmerica (through SunAmerica/Balanced component)
WMC (through WMC/Fixed Income component)
- ---------------------------------------------------------------------------------------------------
Multi-Managed Income Portfolio Janus (through Janus/Growth component)
SunAmerica (through SunAmerica/Balanced component)
WMC (through WMC/Fixed Income component)
- ---------------------------------------------------------------------------------------------------
Asset Allocation: Diversified Income Putname
Portfolio
- ---------------------------------------------------------------------------------------------------
Stock Portfolio T. Rowe Price
- ---------------------------------------------------------------------------------------------------
B-58
<PAGE>
<CAPTION>
PORTFOLIO MANAGEMENT ALLOCATED
PORTFOLIO AMONG THE FOLLOWING MANAGERS
<S> <C>
Large Cap Growth Portfolio Bankers Trust
GSAM
Janus
- ---------------------------------------------------------------------------------------------------
Large Cap Composite Portfolio Bankers Trust
SunAmerica
T. Rowe Price
- ---------------------------------------------------------------------------------------------------
Large Cap Value Portfolio Bankers Trust
T. Rowe Price
WMC
- ---------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio Bankers Trust
T. Rowe Price
WMC
- ---------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio Bankers Trust
GSAM
Lord Abbett
- ---------------------------------------------------------------------------------------------------
Small Cap Portfolio Bankers Trust
Lord Abbett
SunAmerica
- ---------------------------------------------------------------------------------------------------
International Equity Portfolio Bankers Trust
GSAM-International
Lord Abbett (subcontracted to Fuji-Lord Abbett
International, Limited ("Fuji-Lord Abbett"))
- ---------------------------------------------------------------------------------------------------
Diversified Fixed Income Portfilio Bankers Trust
SunAmerica
WMC
- ---------------------------------------------------------------------------------------------------
Cash Management Portfolio SunAmerica
- ---------------------------------------------------------------------------------------------------
</TABLE>
Each of the other Managers 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 other Managers' fees. Bankers Trust is
a wholly-owned subsidiary of Bankers Trust New York Corporation and an indirect
wholly-owned subsidiary of Deutsche Bank A.G. GSAM is a separate operating
division of Goldman, Sachs & Co., a New York limited partnership. GSAM-
International, London, England, is an affiliate of Goldman, Sachs & Co. The
Goldman Sachs Group, L.P., which controls GSAM and GSAM International, has
merged into the Goldman Sachs Group, Inc. as the result of an initial public
offering. The general partners of Lord Abbett are
B-59
<PAGE>
Stephen I. Allen, Zane E. Brown, Daniel E. Carper, Robert S. Dow, John E. Erard,
Robert P. Fetch, Daria L. Foster, Robert I. Gerber, Paul A. Hilstad, W. Thomas
Hudson, Jr., Stephen I McGruder, Michael B. McLaughlin, Robert G. Morris, Robert
J. Noelke, Mark R. Pennington, Christopher J. Towle and John J. Walsh. Fuji-Lord
Abbett International, Limited is owned by Fuji Investment Management Company
Limited, The Fuji Bank, Limited and Lord Abbett, all of which may be deemed to
control Fuji as that term is defined in the Investment Company Act of 1940, as
amended. Kansas City Southern Industries, Inc. ("KCSI"), owns approximately 82%
of the outstanding voting stock of Janus, and is publicly traded holding company
with principal operations in rail transportation through its subsidiary The
Kansas City Southern Railway Company and financial asset management businesses.
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. T. Rowe Price is a publicly traded company. The
following persons are managing partners of WMC: Robert W. Doran, Duncan M.
McFarland and John R. Ryan.
SunAmerica will initially allocate the assets of each Multi-Managed Seasons
Select Portfolio among the Manager for that Portfolio, in a manner designed to
maximize investment efficiency. SunAmerica will then allocate new cash from
share purchases over redemption requests equally among the Managers of each such
Portfolio unless SunAmerica determines, subject to the review of the Trustees,
that a different allocation of assets would be in the best interests of a
Portfolio and its shareholders. The Trust expects that differences in investment
returns among the portions of a Portfolio managed by different Managers will
cause the actual percentage of a Portfolio's assets managed by each Manager to
vary over time. SunAmerica intends, on a quarterly basis, to review the asset
allocation in each Multi-Managed and Seasons Select Portfolio to determine the
extent to which the portion of assets managed by a Manager exceeds that portion
managed by any other Manager to the Portfolio. If SunAmerica determines that the
difference is significant, SunAmerica will then re-allocate cash flows among the
three Managers, differently from the manner described above, in an effort to
effect a re-balancing of the Portfolio's asset allocation. In general, a
Portfolio's assets once allocated to one Manager will not be reallocated (or
"rebalanced") to another Manager for the Portfolio. However, SunAmerica reserves
the right, subject to the review of the Board, to reallocate assets from one
Manager to another when deemed in the best interests of a Portfolio and its
shareholders. In some instances, where a reallocation results in any rebalancing
of the Portfolio from a previous allocation, the effect of the reallocation may
be to shift assets from a better performing Manager to a portion of the
Portfolio with a relatively lower total return.
Each Multi-Managed Seasons Portfolio allocates its assets among the Managed
Components as described in the Prospectus. Differences in investment returns
among the Managed Components may cause the actual percentages to vary over the
course of a calendar quarter from the targets listed in the chart. 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.
B-60
<PAGE>
SunAmerica pays each other Manager to the Seasons Portfolios a monthly fee
with respect to each Portfolio for which such Manager performs services,
computed on average daily net assets. SunAmerica has received an exemptive order
that, among other things, permits the Trust to disclose to shareholders the
Managers' fees only in the aggregate for each Portfolio.
The following table sets forth the aggregate subadvisory fees paid to the
other Managers of the Seasons Portfolios by SunAmerica for the fiscal years
ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
FEE FEE
PORTFOLIO 1998* 1999
--------- ----- ----
<S> <C> <C>
Multi-Managed Growth Portfolio $44,760 $142,325
Multi-Managed Moderate Growth Portfolio $40,269 $131,522
Multi-Managed Income/Equity Portfolio $29,105 $98,717
Multi-Managed Income Portfolio $21,659 $72,430
Asset Allocation: Diversified Growth Portfolio $134,772 $686,471
Stock Portfolio $104,733 $567,628
Large Cap Growth Portfolio+ -- $7,293
Large Cap Composite Portfolio+ -- $2,583
Large Cap Value Portfolio+ -- $6,078
Mid Cap Growth Portfolio+ -- $5,941
Mid Cap Value Portfolio+ -- $6,395
Small Cap Portfolio+ -- $2,556
International Equity Portfolio+ -- $8,659
Diversified Fixed Income Portfolio+ -- $2,449
</TABLE>
* For the period April 15, 1997 (commencement of operations) through March 31,
1998.
+ For the period February 8, 1999 (commencement of operations) through March 31,
1999.
B-61
<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 SunAmerica, on not less than
thirty (30) nor more than sixty (60) days' written notice to the Manager, or by
the Manager, on not less than ninety (90) days' written notice to SunAmerica and
the Trust; provided, that the Manager 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 SunAmerica.
PERSONAL TRADING. The Trust and SunAmerica have adopted a written Code of
Ethics (the "SunAmerica Code of Ethics"), 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 SunAmerica Code of
Ethics is an individual who is a trustee, director, officer, general partner or
advisory person of the Trust or SunAmerica. 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 SunAmerica,
(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. SunAmerica reports to the Board of Trustees on a
quarterly basis as to whether there were any violations of the SunAmerica Code
of Ethics by Access Persons of the Trust or SunAmerica during the quarter. The
Managers 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
SunAmerica Code of Ethics. Further, the other Managers report to SunAmerica 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,
SunAmerica reports to the Board of Trustees as to whether there were any
violations of the SunAmerica Code of Ethics by Access Persons of the Trust or
SunAmerica.
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 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 it distributes to its
shareholders. Each Portfolio intends to distribute all income and net realized
capital gains to the Variable Separate Account. If a Portfolio should fail to
meet the requirements of Subchapter M, it would be subject
B-62
<PAGE>
to income tax on its income and capital gains. Each Portfolio is subject to
asset diversification regulations prescribed by the U.S. Treasury Department
under the Code. In general, these regulations effectively 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, all
securities of the same issuer are considered a single investment, but each U.S.
agency or instrumentality is treated as a separate issuer. There are also
alternative diversification tests which may be satisfied by the Portfolio under
the regulation. Each Portfolio intends to comply with the diversification
regulations. If a Portfolio fails to comply with these regulations, the
contracts invested in that Portfolio will not be treated as annuity, endowment
or life insurance contracts under the Code.
SHARES OF THE TRUST
The Trust consists of fifteen separate Portfolios, each of which offers a
single class of shares. 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.
B-63
<PAGE>
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.
PRICE OF SHARES
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.
B-64
<PAGE>
A Portfolio's liabilities, including proper accruals of expense items, are
deducted from total assets.
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.
EXECUTION OF PORTFOLIO TRANSACTIONS
It is the policy of the Trust, in effecting transactions in portfolio
securities, to seek the best execution at the most favorable prices. The
determination of what may constitute best execution involves a number of
considerations, including the economic result to the Trust (involving both price
paid or received and any commissions and other costs), the efficiency with which
the transaction is effected where a large block is involved, the availability of
the broker to stand ready to execute potentially difficult transactions and the
financial strength and stability of the broker. Such considerations are
judgmental and are considered in determining the overall reasonableness of
brokerage commissions paid.
A factor in the selection of brokers is the receipt of research services --
analyses and reports concerning issuers, industries, securities, economic
factors and trends -- and other statistical and factual information. Research
and other statistical and factual information provided by brokers is considered
to be in addition to and not in lieu of services required to be performed by the
Manager.
A Manager may cause a Portfolio to pay such broker-dealers commissions that
exceed what other broker-dealers may have charged, if in its view the
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by the broker-dealer. 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 may not be used by the Manager in connection with
the Trust and could be useful and of value to the Manager in serving other
clients as well as the Trust. Research services obtained by the Manager as a
result of the placement of portfolio brokerage of other clients could also 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
that 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 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.
B-65
<PAGE>
Subject to the above considerations, a Manager may use broker-dealer
affiliates of an Adviser 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 that 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 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 paid to affiliated broker-dealers
of such Portfolios for such period.
1999 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
COMMISSIONS AMOUNT OF
AMOUNT PAID PAID TO TRANSACTIONS
AGGREGATE TO AFFILIATED AFFILIATED INVOLVING
PORTFOLIO BROKERAGE BROKER- BROKER- PAYMENT OF
COMMISSIONS DEALERS* DEALERS* COMMISSIONS
<S> <C> <C> <C> <C>
Multi-Managed Growth $71,608 - - -
Multi-Managed Moderate Growth $61,464 - - -
Multi-Managed Income/Equity $25,354 - - -
Multi-Managed Income $11,225 - - -
Asset Allocation: Diversified Growth $165,459 $28 0.02% 0.00%
Stock $108,478 - - -
Large Cap Growth+ $8,033 $49 0.61% 0.41%
Large Cap Composite+ $7,037 $6 0.09% 0.13%
Large Cap Value+ $7,626 $74 0.97% 1.76%
Mid Cap Growth+ $8,035 $108 1.34% 1.09%
Mid Cap Value+ $22,811 $262 1.15% 0.43%
Small Cap+ $10,881 - - -
International Equity+ $17,560 - - -
Diversified Fixed Income+ - - - -
Cash Management+ - - - -
B-66
<PAGE>
1998 BROKERAGE COMMISSIONS
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
COMMISSIONS AMOUNT OF
AMOUNT PAID PAID TO TRANSACTIONS
AGGREGATE TO AFFILIATED AFFILIATED INVOLVING
PORTFOLIO BROKERAGE BROKER- BROKER- PAYMENT OF
COMMISSIONS DEALERS* DEALERS* COMMISSIONS
<S> <C> <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 affiliated broker-dealers that effected transactions with the
indicated portfolios included: SunAmerica Securities Inc., FSC Securities
Corp., B.T. Alex Brown Inc. and Goldman Sachs.
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 Manager 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 that 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.
B-67
<PAGE>
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 the Manager 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 Manager or its
affiliate is engaged in an underwriting or other distribution of securities of
an entity, the Manager may be prohibited from purchasing or recommending the
purchase of certain securities of that entity for the Portfolio.
Because each Managed Component of a Multi-Managed Seasons Portfolio and
each separate portion of a Multi-Managed Seasons Select 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 or
separate portion, 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.
PricewaterhouseCoopers 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 firm of Swidler Berlin Shereff
Friedman, LLP, 919 Third Avenue, New York, NY 10022, has 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.
B-68
<PAGE>
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
SEC under the Securities Act 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 SEC, Washington, D.C., to all of which reference is hereby made.
FINANCIAL STATEMENTS
The Trust's audited financial statements are incorporated into this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the Annual Report at no charge by
calling (800) 445-7862 or writing the Trust at P.O. Box 54299, Los Angeles,
California 90054-0299.
B-69
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits:
(a) 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.
(b) 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.
(c) Inapplicable.
(d)(i) Investment Advisory and Management Agreement. Incorporated herein by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A (File No. 333-08653) filed on
January 29, 1999.
(d)(ii) Subadvisory Agreements. Incorporated herein by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A (File No. 333-08653) filed on January 29,
1999 (except for the Subadvisory Agreement between SunAmerica and
Bankers trust Company).
(d)(iii) Subadvisory Agreement between SunAmerica and Bankers Trust Company.
(e) Inapplicable.
(f) Inapplicable.
(g) 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.
(h) 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.
(i) Opinion and Consent of Counsel. Incorporated herein by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A (File No. 333-08653) filed on January 29,
1999.
(j) Consent of Independent Accountants.
(k) Inapplicable.
1
<PAGE>
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable.
(o)(i) Inapplicable.
(ii) Powers of Attorney. Incorporated herein by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A (File No. 333-08653) filed on January 29,
1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
The following entities are under control with the Registrant,
Seasons Series Trust:
1) Anchor Pathway Fund;
2) Anchor Series Trust; and
3) SunAmerica Series Trust
Each of the above-referenced entities, including Seasons Series Trust, is
organized under the laws of the State of Massachusetts as a Massachusetts
business trust.
Item 25. Indemnification.
Article VI of the Registrant's By-Laws relating to the indemnification of
officers and trustees is quoted below:
ARTICLE VI
INDEMNIFICATION
The Trust shall provide any indemnification required by applicable law and
shall indemnify trustees, officers, agents and employees as follows:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was or is
a party or is threatened to be made a party of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the Trust) by reason of
the fact that such Person is or was such Trustee or officer or an employee or
agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, Trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such Person in connection with such action, suit or proceeding,
provided such Person acted in good faith and in a manner such Person reasonably
believed to be in or not opposed to the best interests of the Trust, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such Person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Person did not reasonably believe his or her actions to be in or not opposed
to the best interests of the Trust, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such Person's conduct was
unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was or is
a party or is
2
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
(d)(iii) Subadvisory Agreement between SunAmerica and Bankers Trust Company
(j) Consent of Independent Accountants
<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of June 4, 1999 by and
between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and BANKERS TRUST COMPANY, a wholly-owned indirect subsidiary of
Deutsche Bank AG (the "Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Seasons Series Trust, a Massachusetts business
trust (the "Trust"), have entered into an Investment Advisory and Management
Agreement dated as of January 1, 1999, as amended from time to time (the
"Advisory Agreement"), pursuant to which the Adviser has agreed to provide
investment management, advisory and administrative services to the Trust; and
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end management investment company and may
issue shares of beneficial interest, par value $.01 per share, in separately
designated portfolios representing separate funds with their own investment
objectives, policies and purposes; and
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is a "bank" as defined under the Investment Advisers Act
of 1940, as amended; and
WHEREAS, the Adviser desires to retain the Subadviser to furnish
investment advisory services to the investment portfolio or portfolios of the
Trust listed on Schedule A attached hereto (the "Portfolio(s)"), and the
Subadviser is willing to furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. DUTIES OF THE SUBADVISER. (a) The Adviser hereby engages the
services of the Subadviser in furtherance of its Investment Advisory and
Management Agreement with the Trust. Pursuant to this Subadvisory Agreement and
subject to the oversight and review of the Adviser, the Subadviser will manage
the investment and reinvestment of a portion of the assets of each Portfolio
listed on Schedule A attached hereto. The Subadviser will determine, in its
discretion and subject to the oversight and review of the Adviser, the
securities to be purchased or sold, will provide the Adviser with records
concerning its activities which the Adviser or the Trust is required to
maintain, and will render regular reports to the Adviser and to officers and
Trustees of the Trust concerning its discharge of the foregoing
responsibilities. The Subadviser shall discharge the foregoing responsibilities
subject to the control of the officers and the Trustees of the Trust and in
compliance with such policies as the Trustees of the Trust may from time to time
establish, and in compliance with (a) the objectives, policies, and limitations
for the Portfolio(s) set forth in the Trust's current prospectus and statement
of additional information, and (b) applicable laws and regulations.
The Subadviser represents and warrants to the Adviser that the
portion of assets
<PAGE>
allocated to it of each of the Portfolios set forth in Schedule A will at all
times be operated and managed (1) in compliance with all applicable federal and
state laws governing its operations and investments; (2) so as not to jeopardize
either the treatment of the Seasons variable annuity contracts issued by
Variable Annuity Account Five (File No. 33-08859; hereinafter "Contracts") as
annuity contracts for purposes of the Internal Revenue Code of 1986, as amended
(the "Code"), or the eligibility of the Contracts to qualify for sale to the
public in any state where they may otherwise be sold; and (3) to minimize any
taxes and/or penalties payable by the Trust or such Portfolio. Without limiting
the foregoing, the Subadviser represents and warrants (1) qualification,
election and maintenance of such election by each Portfolio to be treated as a
"regulated investment company" under Subchapter M, chapter 1 of the Code, and
(2) compliance with (a) the provisions of the Act and rules adopted thereunder;
(b) the diversification requirements specified in the Internal Revenue Service's
regulations under Section 817(h) of the Code; (c) applicable state insurance
laws; (d) applicable federal and state securities, commodities and banking laws;
and (e) the distribution requirements necessary to avoid payment of any excise
tax pursuant to Section 4982 of the Code. The Subadviser further represents and
warrants that to the extent that any statements or omissions made in any
Registration Statement for the Contracts or shares of the Trust, or any
amendment or supplement thereto, are made in reliance upon and in conformity
with information furnished by the Subadviser expressly for use therein, such
Registration Statement and any amendments or supplements thereto will, when they
become effective, conform in all material respects to the requirements of the
Securities Act of 1933 and the rules and regulations of the Commission
thereunder (the "1933 Act") and the Act and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
The Subadviser accepts such employment and agrees, at its own
expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement.
(b) The Subadviser agrees: (i) to maintain a level of errors and
omissions or professional liability insurance coverage that, at all times during
the course of this Agreement, is appropriate given the nature of its business,
and (ii) from time to time and upon reasonable request, to supply evidence of
such coverage to the Adviser.
2. PORTFOLIO TRANSACTIONS. The Subadviser is responsible for decisions
to buy or sell securities and other investments for a portion of the assets of
each Portfolio, broker-dealers and futures commission merchants' selection, and
negotiation of brokerage commission and futures commission merchants' rates. As
a general matter, in executing portfolio transactions, the Subadviser may employ
or deal with such broker-dealers or futures commission merchants as may, in the
Subadviser's best judgement, provide prompt and reliable execution of the
transactions at favorable prices and reasonable commission rates. In selecting
such broker-dealers or futures commission merchants, the Subadviser shall
consider all relevant factors including price (including the applicable
brokerage commission, dealer spread or futures commission merchant rate), the
size of the order, the nature of the market for the security or other
investment, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer or futures
<PAGE>
commission merchant involved, the quality of the service, the difficulty of
execution, the execution capabilities and operational facilities of the firm
involved, and, in the case of securities, the firm's risk in positioning a block
of securities. Subject to such policies as the Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the Subadviser shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of the Subadviser's having caused a Portfolio to pay a member of an
exchange, broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another member of an exchange,
broker or dealer would have charged for effecting that transaction, if the
Subadviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such member of an exchange, broker or dealer viewed in terms of
either that particular transaction or the Subadviser's overall responsibilities
with respect to such Portfolio and to other clients as to which the Subadviser
exercises investment discretion. In accordance with Section 11(a) of the 1934
Act and Rule 11a2-2(T) thereunder, and subject to any other applicable laws and
regulations including Section 17(e) of the Act and Rule 17e-1 thereunder, the
Subadviser may engage its affiliates, the Adviser and its affiliates or any
other subadviser to the Trust and its respective affiliates, as broker-dealers
or futures commission merchants to effect portfolio transactions in securities
and other investments for a Portfolio. The Subadviser will promptly communicate
to the Adviser and to the officers and the Trustees of the Trust such
information relating to portfolio transactions as they may reasonably request.
To the extent consistent with applicable law, the Subadviser may aggregate
purchase or sell orders for the Portfolio with contemporaneous purchase or sell
orders of other clients of the Subadviser or its affiliated persons. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser determines to be equitable and consistent with its and its
affiliates' fiduciary obligations to the Portfolio and to such other clients.
The Adviser hereby acknowledges that such aggregation of orders may not result
in more favorable pricing or lower brokerage commissions in all instances.
3. COMPENSATION OF THE SUBADVISER. The Subadviser shall not be entitled
to receive any payment from the Trust and shall look solely and exclusively to
the Adviser for payment of all fees for the services rendered, facilities
furnished and expenses paid by it hereunder. As full compensation for the
Subadviser under this Agreement, the Adviser agrees to pay to the Subadviser a
fee at the annual rates set forth in Schedule A hereto with respect to the
portion of the assets managed by the Subadviser for each Portfolio listed
thereon. Such fee shall be accrued daily and paid monthly as soon as practicable
after the end of each month (i.e., the applicable annual fee rate divided by 365
applied to each prior days' net assets in order to calculate the daily accrual).
For purposes of calculating the Subadviser's fee, the average daily net asset
value of a Portfolio shall mean the average daily net assets for which the
Subadviser actually provides advisory services, and shall be determined by
taking an average of all determinations of such net asset value during the
month. If the Subadviser shall provide its services under this Agreement for
less than the whole of any month, the foregoing compensation shall be prorated.
4. OTHER SERVICES. At the request of the Trust or the Adviser, the
Subadviser in its discretion may make available to the Trust, office facilities,
equipment, personnel and other services in order to facilitate meetings or other
similar functions. Such office facilities, equipment, personnel
<PAGE>
and services shall be provided for or rendered by the Subadviser and billed to
the Trust or the Adviser at the Subadviser's cost.
5. REPORTS. The Trust, the Adviser and the Subadviser agree to furnish
to each other, if applicable, current prospectuses, statements of additional
information, proxy statements, reports of shareholders, certified copies of
their financial statements, and such other information with regard to their
affairs and that of the Trust as each may reasonably request.
6. STATUS OF THE SUBADVISER. The services of the Subadviser to the
Adviser and the Trust are not to be deemed exclusive, and the Subadviser shall
be free to render similar services to others so long as its services to the
Trust are not impaired thereby. The Subadviser shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust.
7. CERTAIN RECORDS. The Subadviser hereby undertakes and agrees to
maintain, in the form and for the period required by Rule 31a-2 under the Act,
all records relating to the investments of the Portfolio(s) that are required to
be maintained by the Trust pursuant to the requirements of Rule 31a-1 of that
Act. Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 promulgated under the Act which are
prepared or maintained by the Subadviser on behalf of the Trust are the property
of the Trust and will be surrendered promptly to the Trust or the Adviser on
request.
The Subadviser agrees that all accounts, books and other records
maintained and preserved by it as required hereby shall be subject at any time,
and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, the Trust's auditors,
the Trust or any representative of the Trust, the Adviser, or any governmental
agency or other instrumentality having regulatory authority over the Trust.
8. REFERENCE TO THE SUBADVISER. Neither the Trust nor the Adviser or
any affiliate or agent thereof shall make reference to or use the name of the
Subadviser or any of its affiliates in any advertising or promotional materials
without the prior approval of the Subadviser, which approval shall not be
unreasonably withheld.
9. LIABILITY OF THE SUBADVISER. (a) In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties ("disabling conduct") hereunder on the part of the Subadviser (and its
officers, directors, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Subadviser) the Subadviser 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
hereunder, including without limitation, any error of judgment or mistake of law
or for any loss suffered by any of them in connection with the matters to which
this Agreement relates, except to the extent specified in Section 36(b) of the
Act concerning loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services. Except for such disabling conduct, the
Adviser shall indemnify the Subadviser (and its officers, directors, partners,
agents, employees, controlling persons, shareholders and any other
<PAGE>
person or entity affiliated with the Subadviser) (collectively, the
"Indemnified Parties") from any liability arising from the Subadviser's
conduct under this Agreement.
(b) The Subadviser agrees to indemnify and hold harmless the
Adviser and its affiliates and each of its directors and officers and each
person, if any, who controls the Adviser within the meaning of Section 15 of the
1933 Act against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), to which the Adviser or its affiliates or
such directors, officers or controlling person may become subject under the 1933
Act, under other statutes, at common law or otherwise, which may be based upon
(i) any wrongful act or breach of this Agreement by the Subadviser, or (ii) any
failure by the Subadviser to comply with the representations and warranties set
forth in Section 1 of this Agreement; provided, however, that in no case is the
Subadviser's indemnity in favor of any person deemed to protect such other
persons against any liability to which such person would otherwise be subject by
reasons of willful misfeasance, bad faith, or gross negligence in the
performance of his, her or its duties or by reason of his, her or its reckless
disregard of obligation and duties under this Agreement.
(c) The Subadviser shall not be liable to the Adviser for (i)
any acts of the Adviser or any other subadviser to the Portfolio with respect to
the portion of the assets of a Portfolio not managed by Subadviser and (ii) acts
of the Subadviser which result from acts of the Adviser, including, but not
limited to: (A), a failure of the Adviser to provide accurate and current
information with respect to any records maintained by Adviser or any other
subadviser to a Portfolio, which records are not also maintained by or otherwise
available to the Subadviser upon reasonable request; and (B) acts of the
Subadviser that were made in reasonable reliance upon information provided to it
by the Adviser. The Adviser agrees that Subadviser shall manage the portion of
the assets of a Portfolio allocated to it as if it was a separate operating
portfolio and shall comply with subsections (a) and (b) of Section 1 of this
Subadvisory Agreement (including, but not limited to, the investment objectives,
policies and restrictions applicable to a Portfolio and qualifications of a
Portfolio as a regulated investment company under the Code) with respect to the
portion of assets of a Portfolio allocated to Subadviser. The Adviser shall
indemnify the Indemnified Parties from any liability arising from the conduct of
the Adviser and any other subadviser with respect to the portion of a
Portfolio's assets not allocated to Subadviser.
10. PERMISSIBLE INTERESTS. Trustees and agents of the Trust are or may
be interested in the Subadviser (or any successor thereof) as directors,
partners, officers, or shareholders, or otherwise; directors, partners,
officers, agents, and shareholders of the Subadviser are or may be interested in
the Trust as trustees, or otherwise; and the Subadviser (or any successor) is or
may be interested in the Trust in some manner.
11. TERM OF THE AGREEMENT. This Agreement shall continue in full force
and effect with respect to each Portfolio until two years from the date hereof,
and from year to year thereafter so long as such continuance is specifically
approved at least annually (i) by the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Trustees
<PAGE>
of the Trust or by vote of a majority of the outstanding voting securities of
the Portfolio voting separately from any other series of the Trust.
With respect to each Portfolio, this Agreement may be terminated at
any time, without payment of a penalty by the Portfolio or the Trust, by vote of
a majority of the Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Act) of the Portfolio, voting separately from any
other series of the Trust, or by the Adviser, on not less than 30 nor more than
60 days' written notice to the Subadviser. With respect to each Portfolio, this
Agreement may be terminated by the Subadviser at any time, without the payment
of any penalty, on 90 days' written notice to the Adviser and the Trust;
provided, however, that this Agreement may not be terminated by the Subadviser
unless another subadvisory agreement has been approved by the Trust in
accordance with the Act, or after six months' written notice, whichever is
earlier. The termination of this Agreement with respect to any Portfolio or the
addition of any Portfolio to Schedule A hereto (in the manner required by the
Act) shall not affect the continued effectiveness of this Agreement with respect
to each other Portfolio subject hereto. This Agreement shall automatically
terminate in the event of its assignment (as defined by the Act).
This Agreement will also terminate in the event that the Advisory
Agreement by and between the Trust and the Adviser is terminated.
12. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
13. AMENDMENTS. This Agreement may be amended by mutual consent in
writing, but the consent of the Trust must be obtained in conformity with the
requirements of the Act.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New York and the applicable provisions of the Act. To
the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall control.
15. PERSONAL LIABILITY. The Declaration of the Trust establishing the
Trust (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, and, in accordance with that Declaration, no
Trustee, shareholder, officer, employee or agent of the Trust shall be held to
any personal liability, nor shall resort be had to their private property for
satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Trust, but the "Trust Property" only shall be liable.
16. SEPARATE SERIES. Pursuant to the provisions of the Declaration,
each Portfolio is a separate series of the Trust, and all debts, liabilities,
obligations and expenses of a particular Portfolio shall be enforceable only
against the assets of that Portfolio and not against the assets of any other
Portfolio or of the Trust as a whole.
<PAGE>
17. NOTICES. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Structured Investment
Management-Documentation Group
Adviser: SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue, Third Floor
New York, NY 10017-3204
Attention: Robert M. Zakem
Senior Vice President and
General Counsel
with a copy to: SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attention: Susan L. Harris
Senior Vice President,
General Counsel - Corporate Affairs
and Secretary
<PAGE>
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of the date first above
written.
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Peter A. Harbeck
---------------------------
Name: Peter A. Harbeck
Title: President
BANKERS TRUST COMPANY
By: /s/ Irene S. Greenberg
---------------------------
Name: Irene S. Greenberg
Title: Vice President
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 6
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated May 19, 1999, relating to the financial statements and financial
highlights appearing in the March 31, 1999 Annual Report to Shareholders of
SunAmerica Seasons Series Trust, which are also incorporated by reference into
the Registration Statement. We also consent to the reference to us under the
heading "Independent Accountants and Legal Counsel" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in the Prospectus, which constitutes part of this Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
July 6, 1999
