<PAGE>
As filed with the Securities and Exchange Commission on April 20, 2000
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. 7 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 9 /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)
/ / 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)
/X/ on July 5, 2000 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 5, 2000
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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
- FOCUS GROWTH 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............. 10
Investment Strategies..................... 10
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
FINANCIAL HIGHLIGHTS.............................. 41
FOR MORE INFORMATION ABOUT SEASONS SERIES TRUST... 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 sixteen 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 , and the glossary that follows on page .
Six of the Portfolios, which we call the "Seasons Portfolios," are available
through the Seasons Variable Annuity Contract. Ten additional Portfolios, which
which we call either the "Seasonal Select Portfolios" or the "Seasons Focused
Portfolios" are available 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>
SEASONS PORTFOLIOS
PORTFOLIO INVESTMENT GOAL
MULTI-MANAGED GROWTH PORTFOLIO long-term growth of capital
MULTI-MANAGED MODERATE GROWTH long-term growth of capital, with
PORTFOLIO capital preservation as a secondary
objective
MULTI-MANAGED INCOME/EQUITY conservation of principal while
PORTFOLIO maintaining some potential for long-term
growth of capital
MULTI-MANAGED INCOME PORTFOLIO capital preservation
ASSET ALLOCATION: DIVERSIFIED capital appreciation
GROWTH PORTFOLIO
STOCK PORTFOLIO long-term capital appreciation, with a
secondary objective of increasing
dividend income
<CAPTION>
<C>
SEASONS PORTFOLIOS
STRATEGY
asset allocation through Managed
Components
asset allocation through Managed
Components
asset allocation through Managed
Components
asset allocation through Managed
Components
investment primarily through a strategic
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
investment primarily in the common
stocks of a diversified group of
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
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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>
SEASONS SELECT PORTFOLIOS
PORTFOLIO INVESTMENT GOAL
LARGE CAP GROWTH PORTFOLIO long-term growth of capital
LARGE CAP COMPOSITE PORTFOLIO long-term growth of capital and growth
of dividend income
LARGE CAP VALUE PORTFOLIO long-term growth of capital
MID CAP GROWTH PORTFOLIO long-term growth of capital
MID CAP VALUE PORTFOLIO long-term growth of capital
SMALL CAP PORTFOLIO long-term growth of capital
INTERNATIONAL EQUITY PORTFOLIO long-term growth of capital
DIVERSIFIED FIXED INCOME relatively high current income and
PORTFOLIO secondarily capital appreciation
CASH MANAGEMENT PORTFOLIO high current yield while preserving
capital
<CAPTION>
<C>
SEASONS SELECT PORTFOLIOS
STRATEGY
investment primarily in equity
securities of large companies (at least
65% of total assets) selected through a
growth strategy
investment primarily in equity
securities of large companies (at least
65% of total assets) that offer the
potential for long-term growth of
capital or dividends
investment primarily in equity
securities of large companies (at least
65% of total assets) selected through a
value strategy
investment primarily in equity
securities of medium sized companies (at
least 65% of total assets) selected
through a growth strategy
investment primarily in equity
securities of medium sized companies (at
least 65% of total assets) selected
through a value strategy
investment primarily in equity
securities of small companies (at least
65% of total assets)
investment primarily in equity
securities of issuers in at least 3
countries other than the U.S.
investment primarily in fixed income
securities, including U.S. and foreign
government securities, mortgaged-backed
securities, investment grade debt
securities, and high yield/high risk
bonds ("junk bonds")
investment in a diversified selection of
money market instruments
</TABLE>
5
<PAGE>
A "FOCUS" STRATEGY -- one in which a Manager actively invests in a small number
of holdings which constitute its favorite stock-picking ideas at any given
moment. A focus philosophy reflects the belief that, over time, the performance
of most investment managers' "highest confidence" stocks exceeds that of their
more diversified portfolios. Each SEASONS FOCUS GROWTH PORTFOLIO Manager will
invest in 10 stocks. Each Manager may invest in additional financial instruments
for the purpose of cash management or to hedge a security in the Portfolio.
When deemed appropriative by a Manager, a Portfolio may engage in ACTIVE TRADING
when it frequently trades its portfolio securities to achieve its investment
goal.
<TABLE>
<CAPTION>
<S> <C>
SEASONS FOCUSED PORTFOLIOS
PORTFOLIO INVESTMENT GOAL
FOCUS GROWTH PORTFOLIO long-term growth of capital
<CAPTION>
<C>
SEASONS FOCUSED PORTFOLIOS
STRATEGY
active trading of equity securities of
growth companies without regard to
market capitalization.
</TABLE>
Each Seasons Select Portfolio and each Seasons Focused
Portfolio, except the CASH MANAGEMENT PORTFOLIO, is
managed by several separate Managers, and we call them
the "Multi-Managed Seasons Select Portfolios" and
"Multi-Managed Seasons Focused Portfolios"
respectively. Each Multi-Managed Seasons Select
Portfolio and Multi-Managed Seasons Focused 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.
Each Multi-Managed Seasons Focused Portfolio offers
you access to at least two different professional
Managers, one of which may be SunAmerica, and each of
which advises a separate portion of the Portfolio.
Each Manager actively selects a limited number of
stocks that represent their best ideas. This approach
to investing results in a more concentrated portfolio,
which will be less diversified than the Multi-Managed
Seasons Select Portfolios, and may be subject to
greater market risks.
SunAmerica will initially allocate the assets of each
Multi-Managed Seasons Select Portfolio and
Multi-Managed Seasons Focused 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 and Multi-Managed Seasons Focused
Portfolio to determine the extent to which the portion
of
6
<PAGE>
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 and Multi-Managed Seasons Focused 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.
7
<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 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.
8
<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.
9
<PAGE>
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MORE INFORMATION ABOUT THE PORTFOLIOS
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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 . 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.
10
<PAGE>
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MULTI-MANAGED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 31.45%
1999 %
</TABLE>
During the two year period shown in the bar chart, the highest return for a
quarter was % (quarter ended ) and the lowest return for a quarter
was % (quarter ended ). For the most recent calendar quarter ended
6/30/00 the return was %.
<TABLE>
<CAPTION>
PAST ONE RETURN SINCE
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR INCEPTION***
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Multi-Managed Growth Portfolio % %
- ----------------------------------------------------------------------------------------------------------
Blended Benchmark Index* % %
- ----------------------------------------------------------------------------------------------------------
S&P 500-Registered Trademark-** % %
- ----------------------------------------------------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
MULTI-MANAGED MODERATE GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 25.07%
1999 %
</TABLE>
During the two year period shown in the bar chart, the highest return for a
quarter was % (quarter ended ) and the lowest return for a quarter
was % (quarter ended ). For the most recent calendar quarter ended
6/30/00 the return was %.
<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 % %
- -----------------------------------------------------------------------------------
Blended Benchmark Index* % %
- -----------------------------------------------------------------------------------
S&P 500-Registered Trademark-** % %
- -----------------------------------------------------------------------------------
</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.
11
<PAGE>
- --------------------------------------------------------------------------------
MULTI-MANAGED INCOME/EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 19.13%
1999 %
</TABLE>
During the two year period shown in the bar chart, the highest return for a
quarter was % (quarter ended ) and the lowest return for a quarter
was % (quarter ended ). For the most recent calendar quarter ended
6/30/00 the return was %.
<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 % %
- ------------------------------------------------------------------------------------
Blended Benchmark Index* % %
- ------------------------------------------------------------------------------------
S&P 500-Registered Trademark-** % %
- ------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index*** % %
- ------------------------------------------------------------------------------------
</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%
1999 %
</TABLE>
During the two year period shown in the bar chart, the highest return for a
quarter was % (quarter ended ) and the lowest return for a quarter
was % (quarter ended ). For the most recent calendar quarter ended
6/30/00 the return was %.
<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 % %
- -----------------------------------------------------------------------------------
Blended Benchmark Index* % %
- -----------------------------------------------------------------------------------
Lehman Brothers Aggregate Index** % %
- -----------------------------------------------------------------------------------
</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.
12
<PAGE>
- --------------------------------------------------------------------------------
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 13.43%
1999 %
</TABLE>
During the two year period shown in the bar chart, the highest return for a
quarter was % (quarter ended ) and the lowest return for a quarter
was % (quarter ended ). For the most recent calendar quarter ended
6/30/00 the return was %.
<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 % %
- -----------------------------------------------------------------------------------
Blended Benchmark Index* % %
- -----------------------------------------------------------------------------------
S&P 500-Registered Trademark-** % %
- -----------------------------------------------------------------------------------
</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%
1999 %
</TABLE>
During the two year period shown in the bar chart, the highest return for a
quarter was % (quarter ended ) and the lowest return for a quarter
was % (quarter ended ). For the most recent calendar quarter ended
6/30/00 the return was %.
<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 % %
- -----------------------------------------------------------------------------------
S&P 500-Registered Trademark-* % %
- -----------------------------------------------------------------------------------
</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.
13
<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 - equity securities - equity securities
principal investments? -mid-cap stocks selected for their -large-cap stocks
-small-cap stocks growth potential -mid-cap stocks
- lesser known or new -large-cap stocks - long term bonds and
growth companies or -mid-cap stocks other debt securities
industries, such as -small cap stocks - 70%/30% neutral
technology, equity/debt weighting
telecommunications, for Multi-Managed and
media and healthcare Growth Portfolios
- 50%/50% neutral
equity/debt weighting
for Multi-Managed
Income/Equity and Income
Portfolios (actual
weighting may differ)
In what other types of - Large-cap stocks - Active trading - Small-cap stocks
investments may the - Active trading - Types of fixed income (up to 20%)
Portfolio significantly - Short-term money market securities: - Short-term money market
invest? instruments -junk bonds (up to 35%) instruments
(up to 25%) - Short-term money market (up to 25%)
- Illiquid securities (up instruments - Foreign securities (up
to 15%) (up to 25%) to 25%)
- Securities lending (up - Illiquid securities (up - ADRs/EDRs/GDRs
to 33 1/3%) to 15%) - Currency transactions
- Securities lending (up - Currency baskets
to 33- 1/3%) - Emerging markets
- PFICs
- Illiquid securities (up
to 15%)
- Securities lending (up
to 33- 1/3%)
<CAPTION>
<S> <C> <C> <C>
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
principal investments? income securities of approximately 80% (with established growth
varying maturities and a range of 65-95%) of companies (at least 65%
risk/return assets to equity of total assets)
characteristics (at securities -large-cap stocks
least 80% investment -large-cap stocks
grade securities and at -mid-cap stocks
least 85% U.S. dollar -small cap stocks
denominated securities) - Strategic allocation of
approximately 20% (with
a range of 5-35%) of
assets to fixed income
securities
In what other types of - Active trading - Types of fixed-income - Short-term money market
investments may the - Types of fixed-income securities: instruments (up to 25%)
Portfolio significantly securities: -junk bonds (up to 20%) - Foreign securities (up
invest? -junk bonds (up to 20%) - Short-term money market to 30%)
- Short-term money market instruments - Illiquid securities (up
instruments (up to 25%) to 15%)
(up to 25%) - Foreign securities (up - Securities lending (up
- Foreign securities (up to 60%) to 33 1/3%)
to 15% denominated in - Illiquid securities (up
foreign currencies; up to 15%)
to 100% denominated in - Securities lending (up
U.S. dollars) to 33 1/3%)
- Emerging markets (up to
20% including
investments in foreign
and domestic junk bonds)
- Illiquid securities (up
to 15%)
- Securities lending (up
to 33 1/3%)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
WMC/FIXEDA/ ASSET ALLOCATION: SUNAMERICA/
INCOMESIVE GROWTH DIVERSIFIEDH BALANCED
COMPONENT GROWTHEPORTFOLIO STOCKNPORTFOLIO
--------- ---------------- ---------------
<S> <C> <C> <C>
What other types of - Types of fixed income - Active trading - Types of fixed income
investments may the securities: - Types of fixed income securities:
Portfolio use as part of -investment grade securities: -investment grade
efficient portfolio -U.S. government -investment grade -U.S. government
management or to enhance securities -U.S. government securities
return? - -asset-backed and securities -asset-backed and
mortgage-backed -asset-backed and mortgage-backed
securities mortgage-backed securities
- Foreign securities securities - Options and futures
- ADRs/EDRs/GDRs - Foreign securities - Special situations
- Currency transactions - ADRs/EDRs/GDRs
- Currency baskets - Currency transactions
- Emerging markets - Currency baskets
- PFICs - Emerging markets
- Options and futures - Active Trading
- Special situations - PFICs
- Options and futures
- Special situations
What risks normally - Stock market volatility - Stock market volatility - Stock and bond market
affect the Portfolio? - Securities selection - Securities selection volatility
- 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
- [Foreign exposure - Non-diversification - [Foreign exposure
- emerging markets - [Foreign exposure - Emerging markets
- euro conversion - emerging markets - Euro conversion
- illiquidity - euro conversion - Illiquidity
- prepayment - credit quality - Prepayment
- derivatives - illiquidity - Derivatives
- hedging] - prepayment - Hedging
- derivatives - Small and mid-market
- hedging] capitalization]
<CAPTION>
<S> <C> <C> <C>
What other types of - Types of fixed income - Types of fixed income - Mid-cap stocks
investments may the securities: securities: - Small-cap stocks
Portfolio use as part of -investment grade -investment grade - Types of fixed income
efficient portfolio -U.S. government -U.S. government securities:
management or to enhance securities securities -investment grade
return? -asset-backed and -asset-backed and -U.S. government
mortgage-backed mortgage-backed securities
securities securities -asset-backed and
- Currency transactions - ADRs/EDRs/GDRs mortgage-backed
- Currency baskets - Currency transactions securities
- PFICs - Currency baskets - ADRs/EDRs/ GDRs
- Options and futures - Emerging markets - Currency transactions
- Special situations - PFICs - Currency baskets
- Options and futures - Emerging markets
- Special situations - PFICs
- Options and futures
- Special situations
What risks normally - Bond market volatility - Stock market volatility - Stock market volatility
affect the Portfolio? - Securities selection - Securities selection - Securities selection
- Interest rate - Growth stocks - Growth stocks
fluctuations - Foreign exposure - Foreign exposure
- Non-diversification - Small and mid-market - [Emerging markets
- [Foreign exposure capitalization - Euro conversion
- Emerging markets - [Emerging markets - Illiquidity
- Euro conversion - Euro conversion - Prepayment
- Credit quality - Credit quality - Derivatives
- Junk bonds - Junk bonds - Hedging
- Illiquidity - Illiquidity - Small and mid-market
- Prepayment - Prepayment capitalization]
- Derivatives - Derivatives
- Hedging] - 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 large - equity securities of large - equity securities of large
principal investments? companies (at least 65% of companies (at least 65% of companies (at least 65% of
total assets) selected total assets) that offer the total assets) selected
through a growth strategy potential for long-term through a value strategy
-large-cap stocks growth of capital or -large-cap stocks
dividends
-large-cap stocks
<CAPTION>
<S> <C> <C> <C>
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 small
principal investments? medium-sized companies (at medium-sized companies (at companies (at least 65% of
least 65% of total assets) least 65% of total assets) total assets)
selected through a growth selected through a value
strategy strategy
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
What are the Portfolio's - equity securities of issuers - fixed income securities, - a diversified selection of
principal investments? in at least three countries including U.S. and foreign money market instruments
other than the United States government securities
- mortgage- backed securities
- investment grade debt
securities
- high yield/high risk bonds
(junk bonds)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LARGE CAP LARGE CAP COMPOSITE
GROWTH PORTFOLIO PORTFOLIO LARGE CAP VALUE PORTFOLIO
In what other types of - Mid-cap stocks - Mid-cap stocks - Mid-cap stocks
investments may the Portfolio - Active trading - Active trading - Active trading
significantly invest? - Types of fixed- income - Junk bonds (up to 15%) - Short-term money market
securities: - Short-term money market instruments (up to 25%)
-junk bonds (up to 15%) instruments (up to 25%) - Foreign securities (up to
- Short-term money market - Foreign securities (up to 30%)
instruments (up to 25%) 30%) - ADRs/EDRs/ GDRs
- Foreign securities (up to - ADRs/EDRs/ GDRs - PFICs
30%) - PFICs (up to 10%) - Illiquid securities (up to
- ADRs/EDRs/ GDRs - Illiquid securities (up to 15%)
- PFICs (up to 10%) 15%) - Securities lending (up to
- Illiquid securities (up to - Securities lending (up to 33 1/3%)
15%) 33 1/3%)
- Securities lending (up to
33 1/3%)
<CAPTION>
<S> <C> <C> <C>
MID CAP GROWTH
PORTFOLIO MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
In what other types of - Large-cap stocks - Large-cap stocks - Active trading
investments may the Portfolio - Small-cap stocks - Small-cap stocks - Types of fixed- income
significantly invest? - Active trading - Active trading securities:
- Short-term money market - Junk bonds (up to 20%) -Junk bonds (up to 20%)
instruments (up to 25%) - Short-term money market - Short-term money market
- Foreign securities (up to instruments (up to 25%) instruments (up to 25%)
30%) - Foreign securities (up to - Foreign securities (up to
- ADRs/EDRs/ GDRs 30%) 30%)
- PFICs - ADRs/EDRs/ GDRs - ADRs/EDRs/ GDRs
- Illiquid securities (up to - PFICs (up to 10%) - PFICs (up to 10%)
15%) - Illiquid securities (up to - Illiquid securities (up to
- Securities lending (up to 15%) 15%)
33 1/3%) - Securities lending (up to - Securities lending (up to
33%) 33%)
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
In what other types of - Large-cap stocks - Large-cap stocks - Types of fixed income
investments may the Portfolio - Mid-cap stocks - Mid-cap stocks securities:
significantly invest? - Small-cap stocks - Active trading -investment grade
- Active trading - Types of fixed- income -U.S. government securities
- Junk bonds (up to 35%) securities: - Illiquid securities (up to
- Short-term money market -Junk bonds (up to 20%) 10%)
instruments (up to 25%) -asset-backed and mortgage-
- ADRs/EDRs/ GDRs backed securities
- PFICs (up to 10%) - Short-term money market
- Emerging markets instruments (up to 25%)
- Illiquid securities (up to - Foreign securities (up to
15%) 30%)
- Securities lending (up to - ADRs/EDRs/ GDRs
33%) - PFICs
- Illiquid securities (up to
15%)
- Securities lending (up to
33%)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LARGE CAP LARGE CAP COMPOSITE
GROWTH PORTFOLIO PORTFOLIO LARGE CAP VALUE PORTFOLIO
What other types of - Small-cap stocks - Small-cap stocks - Small-cap stocks
investments may the Portfolio - Types of fixed income - Types of fixed income - Types of fixed income
use as part of efficient securities: securities: securities:
portfolio management or to -investment grade -investment grade -investment grade
enhance return? -U.S. government securities -U.S. government securities -U.S. government securities
-asset-backed and mortgage- -asset-backed and mortgage- -asset-backed and mortgage-
backed securities backed securities backed securities
- REITs - REITs - Junk bonds (up to 10%)
- Currency transactions - Currency transactions - REITs
- Currency baskets - Currency baskets - Currency transactions
- Emerging markets - Emerging markets - Currency baskets
- Options and futures - Options and futures - Emerging markets
- Hybrid instruments (up to - Hybrid instruments (up to - Options and futures
10%) 10%) - Hybrid instruments (up to
- Interest rate swaps, - Interest rate swaps, 10%)
mortgage swaps, caps, floors mortgage swaps, caps, floors - Interest rate swaps,
and collars and collars mortgage swaps, caps, floors
- Special situations - Special situations and collars
- Special situations
<CAPTION>
<S> <C> <C> <C>
MID CAP GROWTH
PORTFOLIO MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
What other types of - Types of fixed income - Types of fixed- income - Large-cap stocks
investments may the Portfolio securities: securities: - Mid-cap stocks
use as part of efficient -investment grade -investment grade - Types of fixed- income
portfolio management or to -U.S. government securities -U.S. government securities securities:
enhance return? -asset-backed and mortgage- -asset-backed and mortgage- -investment grade
backed securities backed securities -U.S. government securities
- REITs - REITs -asset-backed and mortgage-
- Currency transactions - Currency transactions backed securities
- Currency baskets - Currency baskets - REITs
- Emerging markets - Emerging markets - Currency transactions
- Options and futures - Options and futures - Currency baskets
- Hybrid instruments (up to - Hybrid instruments (up to - Emerging markets
10%) 10%) - Options and futures
- Interest rate swaps, - Interest rate swaps, - Hybrid instruments (up to
mortgage swaps, caps, floors mortgage swaps, caps, floors 10%)
and collars and collars - Interest rate swaps,
- Special situations - Special situations mortgage swaps, caps, floors
and collars
- Special situations
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
What other types of - Types of fixed-income - Currency transactions - Types of fixed income
investments may the Portfolio securities: - Currency baskets securities:
use as part of efficient -investment grade - Emerging markets -asset-backed and mortgage-
portfolio management or to -U.S. government securities - Options and futures backed securities
enhance return? -asset-backed and mortgage- - Hybrid instruments (up to - [SPECIAL SITUATIONS]
backed securities 10%)
- REITs - Interest rate swaps,
- Currency transactions mortgage swaps, caps, floors
- Currency baskets and collars
- Options and futures - Special situations
- Hybrid instruments (up to
10%)
- Interest rate swaps,
mortgage swaps, caps, floors
and collars
- Special situations
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LARGE CAP LARGE CAP COMPOSITE
GROWTH PORTFOLIO PORTFOLIO LARGE CAP VALUE PORTFOLIO
What risks will normally - stock market volatility - stock market volatility - stock market volatility
affect the Portfolio? - 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 - [interest rate fluctuations
- [interest rate fluctuations - [interest rate fluctuations - credit quality
- credit quality - credit quality - foreign exposure
- foreign exposure - foreign exposure - emerging markets
- euro conversion - emerging markets - euro conversion
- illiquidity - euro conversion - illiquidity
- prepayment - illiquidity - prepayment
- derivatives - prepayment - derivatives
- hedging - derivatives - hedging
- small and mid-market - hedging - small and mid- market
capitalization] - small and mid-market capitalization]
capitalization]
<CAPTION>
<S> <C> <C> <C>
MID CAP GROWTH
PORTFOLIO MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
What risks will normally - stock market volatility - stock market volatility - stock market volatility
affect the Portfolio? - indexing - indexing - indexing
- securities selection - securities selection - securities selection
- growth stocks - non- diversification - growth stocks
- non- diversification - mid-market capitalization - small market capitalization
- mid-market capitalization - [interest rate fluctuations - non- diversification
- foreign exposure - credit quality - foreign exposure
- [interest rate fluctuations - foreign exposure - [interest rate fluctuations
- credit quality - euro conversion - credit quality
- foreign exposure - illiquidity - foreign exposure
- euro conversion - prepayment - euro conversion
- illiquidity - derivatives - illiquidity
- prepayment - hedging - prepayment
- derivatives - small market capitalization] - derivatives
- hedging - hedging
- small market capitalization] - mid-market capitalization]
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
What risks will normally - stock market volatility - bond market volatility - securities selection
affect the Portfolio? - indexing - indexing - interest rate fluctuations
- securities selection - securities selection - [euro conversion
- foreign exposure - interest rate fluctuations - illiquidity
- emerging markets - credit quality - prepayment]
- euro conversion - issuer default
- non- diversification - [foreign exposure
- [interest rate fluctuations - emerging markets
- credit quality - euro conversion
- illiquidity - illiquidity
- prepayment - prepayment
- derivatives - derivatives
- hedging] - hedging]
</TABLE>
18
<PAGE>
SEASONS FOCUSED PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
FOCUS GROWTH PORTFOLIO
------------------------------------------
What are the Portfolio's principal investments? - Equity Securities
-large-cap stocks
-mid-cap stocks
-small-cap stocks
-common stocks
-preferred Stocks
- Convertible securities
- Warrants
- Rights
In what other types of investments may the Foreign securities
Portfolio significantly invest?
What other types of investments may the Portfolio - Short-term investments
use as part of efficient portfolio management or - Defensive investments
to enhance return? - Options and futures
- Special situations
- Currency transactions
- Fixed-income securities
- Illiquid securities (up to 15%)
What risks normally affect the Portfolio? - Non-diversified status
- Market volatility
- Securities selection
- Growth stocks
- Small and medium sized companies
- Foreign exposure
- Active trading
- Derivatives
- Hedging[Interest rate fluctuations]
</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 , 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 $ billion as of , 2000 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, 2000 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.............................. %
Multi-Managed Moderate Growth Portfolio..................... %
Multi-Managed Income/Equity Portfolio....................... %
Multi-Managed Income Portfolio.............................. %
Asset Allocation: Diversified Growth Portfolio.............. %
Stock Portfolio............................................. %
</TABLE>
26
<PAGE>
For the period February 8, 1999 (commencement of operations) through March 31,
2000, 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.................................. %
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................................... %
</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 , 2000, Bankers Trust managed
approximately $ billion in assets.
FRED ALGER MANAGEMENT, INC. ALGER is a New York corporation wholly owned by its
principals and located at 1 World Trade Center, New York, New York 10048. Since
1964, Alger has provided investment management services to large corporate
pension plans, state and local governments, insurance companies, mutual funds
and high net-worth individuals. As of December 31, 1999, Alger had approximately
$17.4 billion in asset under management.
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 , 2000, GSAM and GSAM-International,
together with their affiliates, acted as investment adviser or distributor for
assets in excess of $ 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 , 2000, had assets under management of approximately
$ billion.
JENNISON ASSOCIATES LLC. JENNISON is a Delaware limited liability company
located at 466 Lexington Avenue, New York, NY 10017. As of December 31, 1999,
Jennison had approximately $59.1 billion in assets under management for
institutional and mutual fund clients.
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 , 2000 managed over $ 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 , 2000, Fuji-Lord Abbett
had assets under management of approximately $ million.
MARSICO CAPITAL MANAGEMENT, LLC. MARSICO is a Colorado limited liability
company located at 1200 17th Street, Suite 1300, Denver, CO 80202. As of
December 31, 1999, Marsico had approximately $14 billion in assets under
management.
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 $ billion as of , 2000.
28
<PAGE>
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 $ billion as of , 2000.
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
, 2000, WMC had discretionary management authority with respect to
approximately $ billion of assets.
PORTFOLIO MANAGEMENT
The management of each Portfolio and Managed Component is summarized in the
following tables.
<TABLE>
<S> <C>
SEASONS PORTFOLIOS
<S> <C>
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>
<S> <C>
SEASONS SELECT PORTFOLIOS
PORTFOLIO MANAGEMENT ALLOCATED AMONG
PORTFOLIO THE FOLLOWING MANAGERS
- --------------------------------------------------------------------------------------------
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>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
SunAmerica/ SunAmerica - Donna M. Calder Ms. Calder has been a
Aggressive Growth Vice President and Portfolio portfolio manager since
component Manager (Domestic Equity joining the firm in
(Multi-Managed Investment Team) March 1998. Prior to joining
Seasons Portfolio) SunAmerica, Ms. Calder was
the Founder and General
Partner of Manhattan Capital
Partners, L.P. (1991-1995)
- ---------------------------------------------------------------------------------------------------------
SunAmerica/ Balanced SunAmerica - Francis D. Gannon Mr. Gannon has been a
component Vice President and portfolio manager with the
(Multi-Managed Portfolio Manager firm since 1996. He joined
Seasons Portfolio) (Domestic Equity Investment Team) SunAmerica as an equity
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 Partner manager with WMC since
(Multi-Managed 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 Committee investments with T. Rowe
Chairman, Managing Director, and Price since joining the firm
Equity Portfolio Manager in 1992.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH BANKERS TRUST - Kathleen Condon Ms. Condon has been an
PORTFOLIO Managing Director and Chief investment officer since
Investment Officer of Structured joining Bankers Trust in
Investments (passively managed 1970.
portion)
----------------------------------------------------------------------
GSAM - George D. Adler Mr. Adler joined GSAM as a
Vice President and Senior portfolio manager and
Portfolio Manager Co-Chair of the Growth 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
Vice President and Senior 1997. From 1991 to 1997, he
Portfolio Manager was a 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
Managing Director and Senior senior portfolio manager and
Portfolio Manager Chief 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
Vice President and Senior portfolio manager and
Portfolio Manager Co-Chair of the Growth 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>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
- David G. Shell Mr. Shell joined GSAM as a
Vice President and Senior portfolio manager in 1997.
Portfolio Manager From 1987 to 1997, 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.
Portfolio Manager From 1992 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 and Portfolio Manager Management of 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>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
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
Chairman Director and Managing since 1983.
Director
----------------------------------------------------------------------
WMC - John R. Ryan Mr. Ryan joined WMC in 1981
Senior Vice President and as a portfolio manager on the
Managing Partner firm's Value Yield Team.
(Value/Yield Team)
- Steven T. Irons Mr. Irons joined WMC in 1993
Vice President and Equity as a research analyst on the
Research Analyst firm's Value Yield Team.
- ---------------------------------------------------------------------------------------------------------
Mid Cap Growth Bankers Trust - Kathleen Condon See above.
Portfolio Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
T. Rowe Price - Donald J. Peters Mr. Peters has been a
Vice President, Portfolio Manager portfolio manager and
& Quantitative Investment Analyst quantitative investment
analyst for T. Rowe Price's
Equity Research Division
since joining the firm in
1993.
----------------------------------------------------------------------
WMC - Robert D. Rands Mr. Rands joined WMC in 1978
Senior Vice President and Partner as a special situations
analyst and became a
portfolio manager in 1983.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
- Steven Angeli Mr. Angeli joined WMC as a
Vice President and Portfolio research analyst in 1994
Manager after receiving his 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
Vice President and Senior research analyst in 1993. She
Portfolio Manager became a portfolio manager in
1996.
- Paul D. Farrell Mr. Farrell joined GSAM as a
Managing Director and Senior portfolio manager in 1991. In
Portfolio Manager 1998, he became responsible
for managing GSAM's Value
Team.
- Matthew B. McLennan Mr. McLennan joined GSAM in
Vice President and Senior 1995. From 1994 to 1995, he
Portfolio Manager worked in the Investment
Banking Division of GSAM in
Australia. From 1991 to 1994,
Mr. McLennan worked at
Queensland Investment Corpo-
ration in Australia.
- Karma Wilson Ms. Wilson joined GSAM as a
Vice President and Senior portfolio manager in 1994.
Portfolio Manager Prior to 1994, she was an
investment analyst with
Bankers Trust Australia Ltd.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
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
Associate Portfolio Manager as an 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 port-
Portfolio Manager folio 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>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
GSAM- - Ivor H. Farman Mr. Farman joined GSAM-
International Executive Director and Senior International as a senior
Portfolio Manager portfolio manager in 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-Interna-
Vice President tional as 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 gen-
eral retailers, business
services and technology
sectors in 1996. From
1994-1996, he was an equity
analyst at CIN Management.
Prior to 1994, he was a
student at the University of
Birmingham.
- Shogo Maeda Mr. Maeda joined GSAM-Inter-
Managing Director and Senior national as a portfolio
Portfolio Manager manager in 1994. From 1987 to
1994, he worked at Nomura
Investment Management
Incorporated as a Senior
Portfolio Manager.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
- Susan Noble Ms. Noble joined GSAM-Inter-
Executive Director and Senior national as a senior
Portfolio Manager portfolio manager and 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 Divi-
sion.
- Siew-Hua Thio Ms. Thio joined GSAM-Inter-
Vice President national 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 - Christopher J. Taylor Mr. Taylor is Managing Direc-
Abbett Portfolio Manager tor of Fuji-Lord Abbett. He
has been employed by
Fuji-Lord Abbett and its
predecessor companies since
1987.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C> <C>
NAME AND TITLE OF PORTFOLIO
PORTFOLIO OR MANAGED MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
COMPONENT TEAM(S))
- ---------------------------------------------------------------------------------------------------------
Diversified Fixed Bankers Trust - Kathleen Condon See above.
Income Portfolio Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
----------------------------------------------------------------------
SunAmerica - John W. Risner Mr. Risner joined SunAmerica
Vice President and as portfolio manager in 1997.
Portfolio Manager From 1992 to 1997, Mr. Risner
(Fixed Income Investment Team) managed the High-Yield and
Convertible Bond portfolios
for Value Line Asset
Management.
----------------------------------------------------------------------
WMC - John C. Keogh Mr. Keogh joined WMC as a
Senior Vice President and Partner portfolio manager in 1983.
- ---------------------------------------------------------------------------------------------------------
Cash Management SunAmerica - Fixed Income Investment Team N/A
Portfolio
----------------------------------------------------------------------
Focus Growth Alger - David D. Alger Mr. Alger joined Alger in
Portfolio President and Portfolio Manager 1971 and has been President
and Director since 1995.
Prior to 1995, Mr. Alger was
Executive Vice President and
Director of Research with the
firm.
----------------------------------------------------------------------
Jennison - Spiros "Sig" Segalas Mr. Segalas is a founding
Portfolio Manager member of Jennison, which was
established in 1969, and he
has been a Director and
Equity Portfolio Manager ever
since. In addition, Mr.
Segalas has served as
President and Chief Invest-
ment Officer of Jennison
since 1993 and 1973,
respectively.
----------------------------------------------------------------------
Marsico - Thomas F. Marsico Mr. Marsico has been the
Portfolio Manager Chairman and Chief Executive
Officer of Marsico since he
formed Marisco in 1997. From
1988 through 1997, Mr.
Marsico served as the
portfolio manager of the
Janus Twenty Fund and from
1991 through 1997, Mr.
Marsico served as the
portfolio manager of the
Janus Growth & Income Fund.
- ---------------------------------------------------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
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>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------- -----------------------
Ratio
Net of
realized & Dividends Dividends Net Net expenses
Net Asset unrealized Total declared from net Asset Assets to
Value Net gain from from net realized Value end of average
beginning investment (loss) on investment investment gain on end of Total period net
Period ended of period income*/** investments operations income investments period Return*** (000's) assets+
----------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi-Managed Growth Portfolio
4/15/97-3/31/98 $10.00 $0.18 $2.95 $ 3.13 ($0.08) ($0.20) $12.85 31.55% $32,481 1.29%#
3/31/99 12.85 0.16 4.41 4.57 (0.18) (0.03) 17.21 35.98 69,712 1.19
3/31/00
Multi-Managed Moderate Growth Portfolio
4/15/97-3/31/98 10.00 0.27 2.40 2.67 (0.13) (0.17) 12.37 26.86 32,622 1.21#
3/31/99 12.37 0.28 3.10 3.38 (0.23) (0.02) 15.50 27.73 75,694 1.16
3/31/00
Multi-Managed Income/Equity Portfolio
4/15/97-3/31/98 10.00 0.41 1.68 2.09 (0.20) (0.10) 11.79 21.10 25,957 1.14#
3/31/99 11.79 0.43 1.57 2.00 (0.36) (0.10) 13.33 17.27 62,121 1.14
3/31/00
Multi-Managed Income Portfolio
4/15/97-3/31/98 10.00 0.51 1.15 1.66 (0.27) (0.10) 11.29 16.81 18,378 1.06#
3/31/99 11.29 0.53 0.72 1.25 (0.40) (0.07) 12.07 11.19 50,250 1.06
3/31/00
Asset Allocation: Diversified Growth Portfolio
4/15/97-3/31/98 10.00 0.23 1.76 1.99 (0.12) (0.16) 11.71 20.09 50,384 1.21#
3/31/99 11.71 0.14 0.90 1.04 (0.12) -- 12.63 9.02 117,663 1.21
3/31/00
Stock Portfolio
4/15/97-3/31/98 10.00 0.03 4.80 4.83 (0.02) (0.15) 14.66 48.59 42,085 1.21#
3/31/99 14.66 0.03 1.84 1.87 (0.02) (0.30) 16.21 13.05 97,047 1.10
3/31/00
----------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C>
------------------
---------------
Ratio of
net
investment
income to
average
net Portfolio
Period ended assets+ turnover
------------------
---------------
Multi-Managed
Growth Portfolio
4/15/97-3/31/98 1.52%# 114%
3/31/99 1.11 124
3/31/00
Multi-Managed
Moderate Growth
Portfolio
4/15/97-3/31/98 2.36# 101
3/31/99 2.08 105
3/31/00
Multi-Managed
Income/Equity
Portfolio
4/15/97-3/31/98 3.72# 46
3/31/99 3.51 65
3/31/00
Multi-Managed
Income Portfolio
4/15/97-3/31/98 4.69# 47
3/31/99 4.50 43
3/31/00
Asset Allocation:
Diversified Growth
Portfolio
4/15/97-3/31/98 2.06# 166
3/31/99 1.21 149
3/31/00
Stock Portfolio
4/15/97-3/31/98 0.24# 46
3/31/99 0.20 52
3/31/00
--------------- ------------------
</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
41
<PAGE>
+ 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 3/31/00 3/31/98 3/31/99 3/31/00
<S> <C> <C> <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>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------- -----------------------
Ratio
Net of
realized & Dividends Dividends Net Net expenses
Net Asset unrealized Total declared from net Asset Assets to
Value Net gain from from net realized Value end of average
beginning investment (loss) on investment investment gain on end of Total period net
Period ended of period income*/** investments operations income investments period Return*** (000's) assets#/+
----------------------------------------------------------------------------------------------- -----------------------
Large Cap Growth Portfolio
2/8/99-3/31/99 $10.00 $ -- 0.77 $ 0.77 -- -- $10.77 7.70% $14,916 1.10%
3/31/00
Large Cap Composite Portfolio
2/8/99-3/31/99 10.00 0.01 0.43 0.44 -- -- 10.44 4.40 11,834 1.10
3/31/00
Large Cap Value Portfolio
2/8/99-3/31/99 10.00 0.02 0.19 0.21 -- -- 10.21 2.10 13,625 1.10
3/31/00
Mid Cap Growth Portfolio
2/8/99-3/31/99 10.00 -- 0.46 0.46 -- -- 10.46 4.60 13,887 1.15
3/31/00
Mid Cap Value Portfolio
2/8/99-3/31/99 10.00 0.02 (0.04) (0.02) -- -- 9.98 (0.20) 13,088 1.15
3/31/00
Small Cap Portfolio
2/8/99-3/31/99 10.00 -- (0.09) (0.09) -- -- 9.91 (0.90) 11,140 1.15
3/31/00
International Equity Portfolio
2/8/99-3/31/99 10.00 0.02 0.32 0.34 -- -- 10.34 3.40 13,693 1.30
3/31/00
Diversified Fixed Income Portfolio
2/8/99-3/31/99 10.00 0.06 (0.12) (0.06) -- -- 9.94 (0.60) 15,229 1.00
3/31/00
Cash Management Portfolio
2/8/99-3/31/99 10.00 0.06 -- 0.06 -- -- 10.06 0.60 2,021 0.85
3/31/00
----------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C>
------------------
---------------
Ratio of
net
investment
income to
average
net Portfolio
Period ended assets#/+ turnover
------------------
---------------
Large Cap Growth
Portfolio
2/8/99-3/31/99 0.20% 6%
3/31/00
Large Cap
Composite
Portfolio
2/8/99-3/31/99 0.55 8
3/31/00
Large Cap Value
Portfolio
2/8/99-3/31/99 1.53 5
3/31/00
Mid Cap Growth
Portfolio
2/8/99-3/31/99 (0.15) 5
3/31/00
Mid Cap Value
Portfolio
2/8/99-3/31/99 1.60 6
3/31/00
Small Cap
Portfolio
2/8/99-3/31/99 0.31 3
3/31/00
International
Equity Portfolio
2/8/99-3/31/99 1.43 7
3/31/00
Diversified Fixed
Income Portfolio
2/8/99-3/31/99 4.53 30
3/31/00
Cash Management
Portfolio
2/8/99-3/31/99 3.97 --
3/31/00
--------------- ------------------
</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>
Expenses# Net Investment Income (Loss)#
3/31/99 3/31/00 3/31/99 3/31/00
<S> <C> <C> <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 ABOUT SEASONS SERIES TRUST
- --------------------------------------------------------------------------------
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.
INVESTMENT COMPANY ACT
File No. 811-07725
44
<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 5, 2000. 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 5, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
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<S> <C>
THE TRUST....................................................................B-3
INVESTMENT OBJECTIVES AND POLICIES...........................................B-4
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS............................B-47
INVESTMENT RESTRICTIONS.....................................................B-51
TRUST OFFICERS AND TRUSTEES.................................................B-53
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT................................B-57
SUBADVISORY AGREEMENTS .....................................................B-62
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES..................................B-67
SHARES OF THE TRUST.........................................................B-67
PRICE OF SHARES.............................................................B-68
EXECUTION OF PORTFOLIO TRANSACTIONS.........................................B-69
GENERAL INFORMATION.........................................................B-72
Custodian..........................................................B-72
Independent Accountants and Legal Counsel..........................B-72
Reports to Shareholders............................................B-73
Shareholder and Trustee Responsibility.............................B-73
Registration Statement.............................................B-73
FINANCIAL STATEMENTS........................................................B-73
</TABLE>
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 sixteen separate series or
portfolios (each, a "Portfolio" and collectively, the "Portfolios"). On _____,
2000 the Board of Trustees approved the creation of the Focus Growth Portfolio.
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 ten
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"),
the Cash Management Portfolio (collectively, with the Multi-Managed Seasons
Select Portfolios, the "Seasons Select Portfolios") and the Focus Growth
Portfolio (a "Multi-Managed Seasons Focused Portfolio") are available in
addition to the Seasons Portfolios through the Seasons Select Variable Annuity
Contract. The Multi-Managed Seasons, Multi-Managed Seasons Select and
Multi-Managed Seasons Focused 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.
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
B-3
<PAGE>
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 be held 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 goal and principal investment strategy for each of the
Portfolios, along with certain types of investments the Portfolios make under
normal market conditions and for efficient portfolio management, are described
under "More Information About the Portfolios -- Investment Strategies" in the
Prospectus. The following charts and information supplements the information
contained in the prospectus and also provides information concerning investments
the Portfolios make on a periodic basis which includes infrequent investments or
investments in which the Portfolios reserve the right to invest. We have also
included a supplemental glossary to define investment and risk terminology used
in the charts below that does not otherwise appear in the Prospectus under the
section entitled "Glossary." In addition, the supplemental glossary also
provides additional and/or more detailed information about certain investment
and risk terminology that appears in the Prospectus under the section entitled
"Glossary." Unless otherwise indicated, investment restrictions, including
percentage limitations, apply at the time of purchase.
B-4
<PAGE>
<TABLE>
<CAPTION>
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SEASONS PORTFOLIOS
- ------------------------------------------------------------------------------------------------------------------------------------
SUNAMERICA/
AGGRESSIVE GROWTH SUNAMERICA/
COMPONENT JANUS/ GROWTH COMPONENT BALANCED COMPONENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In what other types of - U.S. Treasury inflation - U.S. Treasury inflation - U.S. Treasury inflation
investments may the Portfolio protection securities protection securities protection securities
PERIODICALLY invest? - Short sales - Loan participations and - Short sales
- Inverse floaters assignments - Inverse floaters
[Indicate investments made on a - Floating rate obligations - Short sales - Floating rate obligations
VERY INFREQUENT basis and not - When-issued and delayed- - Inverse floaters - When-issued and delayed-
for efficient portfolio delivery securities - Floating rate obligations delivery securities
management, or investments in - Equity swaps - When-issued and delayed- - Equity swaps
which the Portfolio MAY INVEST - Borrowing delivery securities - Borrowing
or would like to RESERVE THE - Reverse repurchase - Equity swaps - Reverse repurchase
RIGHT to invest] agreements - Borrowing agreements
- Roll transactions - Reverse repurchase - Roll transactions
- Standby commitments agreements - Standby commitments
- Warrants - Roll transactions - Warrants
- Forward foreign currency - Standby commitments - Forward foreign currency
exchange contracts - Warrants exchange contracts
- Portfolio trading - Forward foreign currency - Portfolio trading
exchange contracts
- Portfolio trading
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of risk may
POTENTIALLY or PERIODICALLY - - -
affect the portfolio ? - - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEASONS PORTFOLIOS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
WMC/
FIXED INCOME ASSET ALLOCATION:
COMPONENT DIVERSIFIED GROWTH PORTFOLIO STOCK PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In what other types of - U.S. Treasury inflation - U.S. Treasury inflation - U.S. Treasury inflation
investments may the protection securities protection securities protection securities
Portfolio PERIODICALLY - Loan participations and - Short sales - Short sales
invest? assignments - Inverse floaters - Inverse floaters
- Short sales - Floating rate obligations - Floating rate obligations
[Indicate investments made - Inverse floaters - When-issued and delayed- - When-issued and delayed-
on a VERY INFREQUENT basis - Floating rate obligations delivery securities delivery securities
and not for efficient - When-issued and delayed- - Equity swaps - Equity swaps
portfolio management, or delivery securities - Borrowing - Borrowing
investments in which the - Equity swaps - Reverse repurchase - Reverse repurchase
Portfolio MAY INVEST or - Borrowing agreements agreements
would like to RESERVE THE - Reverse repurchase - Roll transactions - Roll transactions
RIGHT to invest] agreements - Standby commitments - Standby commitments
- Roll transactions - Warrants - Warrants
- Standby commitments - Forward foreign currency - Forward foreign currency
- Warrants exchange contracts exchange contracts
- Forward foreign currency - Portfolio trading - Portfolio trading
exchange contracts
- Portfolio trading
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of risk may
POTENTIALLY or PERIODICALLY - - -
affect the portfolio ? - - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEASONS SELECT PORTFOLIOS
- ------------------------------------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH LARGE CAP COMPOSITE LARGE CAP VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In what other types of - U.S. Treasury inflation - U.S. Treasury inflation - U.S. Treasury inflation
investments may the Portfolio protection securities protection securities protection securities
PERIODICALLY invest? - Loan participations and - Loan participations and - Loan participations and
assignments assignments assignments
- Short sales - Short sales - Short sales
- Inverse floaters - Inverse floaters - Inverse floaters
- Floating rate obligations - Floating rate obligations - Floating rate obligations
- When-issued and delayed- - When-issued and delayed- - When-issued and delayed-
delivery securities delivery securities delivery securities
- Equity swaps - Equity swaps - Equity swaps
- Borrowing - Borrowing - Borrowing
- Reverse repurchase - Reverse repurchase - Reverse repurchase
agreements agreements agreements
- Roll transactions - Roll transactions - Roll transactions
- Standby commitments - Standby commitments - Standby commitments
- Warrants - Warrants - Warrants
- Forward foreign currency - Forward foreign currency - Forward foreign currency
exchange contracts exchange contracts exchange contracts
- Portfolio trading - Portfolio trading - Portfolio trading
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of risk may
POTENTIALLY or PERIODICALLY - - -
affect the portfolio ? - - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEASONS SELECT PORTFOLIOS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
MID CAP GROWTH MID CAP VALUE SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In what other types of - U.S. Treasury inflation - U.S. Treasury inflation - U.S. Treasury inflation
investments may the Portfolio protection securities protection securities protection securities
PERIODICALLY invest? - Loan participations and - Loan participations and - Loan participations and
assignments assignments assignments
- Short sales - Short sales - Short sales
- Inverse floaters - Inverse floaters - Inverse floaters
- Floating rate obligations - Floating rate obligations - Floating rate obligations
- When-issued and delayed- - When-issued and delayed- - When-issued and delayed-
delivery securities delivery securities delivery securities
- Equity swaps - Equity swaps - Equity swaps
- Borrowing - Borrowing - Borrowing
- Reverse repurchase - Reverse repurchase - Reverse repurchase
agreements agreements agreements
- Roll transactions - Roll transactions - Roll transactions
- Standby commitments - Standby commitments - Standby commitments
- Warrants - Warrants - Warrants
- Forward foreign currency - Forward foreign currency - Forward foreign currency
exchange contracts exchange contracts exchange contracts
- Portfolio trading - Portfolio trading - Portfolio trading
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of risk may
POTENTIALLY or PERIODICALLY - -
affect the portfolio ? - -
- -
- -
- -
- -
- -
- -
- -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEASONS SELECT PORTFOLIOS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFIED FIXED INCOME
EQUITY PORTFOLIO PORTFOLIO CASH MANAGEMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In what other types of - U.S. Treasury inflation - U.S. Treasury inflation - U.S. Treasury inflation
investments may the protection securities protection securities protection securities
Portfolio PERIODICALLY - Loan participations and - Loan participations and - Inverse floaters
invest? assignments assignments - Floating rate obligations
- Short sales - Short sales - When-issued and delayed-
- Inverse floaters - Inverse floaters delivery securities
- Floating rate obligations - Floating rate obligations - Equity swaps
- When-issued and delayed- - When-issued and delayed- - Reverse repurchase
delivery securities delivery securities agreements
- Equity swaps - Equity swaps - Roll transactions
- Borrowing - Borrowing - Standby commitments
- Reverse repurchase - Reverse repurchase - Warrants
agreements agreements - Forward foreign currency
- Roll transactions - Roll transactions exchange contracts
- Standby commitments - Standby commitments - Portfolio trading
- Warrants - Warrants
- Forward foreign currency - Forward foreign currency
exchange contracts exchange contracts
- Portfolio trading - Portfolio trading
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of risk may
POTENTIALLY or PERIODICALLY - - -
affect the portfolio ? - - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SEASONS FOCUSED PORTFOLIOS
- --------------------------------------------------------------------------------
FOCUS GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C>
In what other - U.S. Treasury inflation protection securities
types of - Loan participations and assignments
investments - Short sales
may the - Floating rate obligations
Portfolio - When-issued and delayed-delivery securities
PERIODICALLY - Equity swaps
invest? - Borrowing
- Reverse repurchase agreements
- Portfolio trading
- --------------------------------------------------------------------------------
What other types -
of risk may -
POTENTIALLY or -
PERIODICALLY -
affect the -
portfolio? -
-
-
-
- --------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL GLOSSARY
SHORT-TERM INVESTMENTS, including both U.S. and non-U.S. dollar
denominated money market instruments, are invested in for reasons that may
include (a) for liquidity purposes (to meet redemptions and expenses); (b) to
generate a return on idle cash held by a Portfolio during periods when an
Adviser/Subadviser is unable to locate favorable investment opportunities; or
(c) for temporary defensive purposes. 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.
The CASH MANAGEMENT PORTFOLIO invests principally in short-term investments.
Common short-term investments include:
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. 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. [T.ROWE]
B-10
<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 with assets in excess of $1 billion and
whose deposits are insured by the FDIC. 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 the Adviser 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.
VARIABLE AMOUNT MASTER DEMAND NOTES permit a Portfolio to invest
varying amounts at fluctuating rates of interest pursuant to the
agreement in the master note. These are direct lending obligations
between the lender and borrower, they are generally not traded, and there
is no secondary market. Such instruments are payable with accrued
interest in whole or in part on demand. The amounts of the instruments
are subject to daily fluctuations as the participants increase or
decrease the extent of
B-11
<PAGE>
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
Adviser/Subadviser, 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 Adviser/Subadviser 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
Adviser/Subadviser 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 397 days 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 Adviser/Subadviser, 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
B-12
<PAGE>
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 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
Adviser/Subadviser 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.
EXTENDABLE COMMERCIAL NOTES ("ECN"s) - Debt
MORTGAGE-BACKED SECURITIES include investments 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
B-13
<PAGE>
realized by the Portfolio to differ from the yield calculated on the basis of
the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Portfolio receives may
occur at higher or lower rates than the original investment, thus affecting the
yield of the Portfolio. Monthly interest payments received by the Portfolio have
a compounding effect, which may increase the yield to shareholders more than
debt obligations that pay interest semi-annually. Because of those factors,
mortgage-backed securities may be less effective than U.S. Treasury bonds of
similar maturity at maintaining yields during periods of declining interest
rates. Accelerated prepayments adversely affect yields for pass-through
securities purchased at a premium (I.E., at a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-through securities purchased at a discount. A
Portfolio may purchase mortgage-backed securities at a premium or at a discount.
The following is a description of GNMA, FNMA and FHLMC certificates, the
most widely available mortgage-backed securities:
GNMA CERTIFICATES. GNMA Certificates 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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<PAGE>
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.
Other types of mortgage-backed securities include:
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.
COLLATERALIZED MORTGAGE OBLIGATIONS ("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.
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
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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.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS") are often structured
with two classes that receive different proportions of the interest and
principal distributions on a pool of mortgage assets. SMBS have greater
market volatility than other types of U.S. government securities in which
a Portfolio invests. A common type of SMBS 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.
ASSET-BACKED 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
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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.
U.S. TREASURY INFLATION PROTECTION SECURITIES are issued by the United
States Department of Treasury ("Treasury") with a nominal return linked to the
inflation rate in prices. The index used to measure inflation is the
non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All
Urban Consumers ("CPI-U"). The value of the principal is adjusted for inflation,
and pays interest every six months. The interest payment is equal to a fixed
percentage of the inflation-adjusted value of the principal. The final payment
of principal of the security will not be less than the original par amount of
the security at issuance. The principal of the inflation-protection security is
indexed to the non-seasonally adjusted CPI-U. To calculate the
inflation-adjusted principal value for a particular valuation date, the value of
the principal at issuance is multiplied by the index ratio applicable to that
valuation date. The index ratio for any date is the ratio of the reference CPI
applicable to such date to the reference CPI applicable to the original issue
date. Semiannual coupon interest is determined by multiplying the
inflation-adjusted principal amount by one-half of the stated rate of interest
on each interest payment date. Inflation-adjusted principal or the original par
amount, whichever is larger, is paid on the maturity date as specified in the
applicable offering announcement. If at maturity the inflation-adjusted
principal is less than the original principal value of the security, an
additional amount is paid at maturity so that the additional amount plus the
inflation-adjusted principal equals the original principal amount. Some
inflation-protection securities may be stripped into principal and interest
components. In the case of a stripped security, the holder of the stripped
principal component would receive this additional amount. The final interest
payment, however, will be based on the final inflation-adjusted principal value,
not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U
for the third preceding calendar month. (For example, the reference CPI for
December 1 is the CPI-U reported for September of the same year, which is
released in October.) The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month. Any revisions
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the Bureau of Labor Statistics (or successor agency) makes to any CPI-U number
that has been previously released will not be used in calculations of the value
of outstanding inflation-protection securities. In the case that the CPI-U for a
particular month is not reported by the last day of the following month, the
Treasury will announce an index number based on the last year-over-year CPI-U
inflation rate available. Any calculations of the Treasury's payment obligations
on the inflation-protection security that need that month's CPI-U number will be
based on the index number that the Treasury has announced. If the CPI-U is
rebased to a different year, the Treasury will continue to use the CPI-U series
based on the base reference period in effect when the security was first issued
as long as that series continues to be published. If the CPI-U is discontinued
during the period the inflation-protection security is outstanding, the Treasury
will, in consultation with the Bureau of Labor Statistics (or successor agency),
determine an appropriate substitute index and methodology for linking the
discontinued series with the new price index series. Determinations of the
Secretary of the Treasury in this regard are final.
Inflation-protection securities will be held and transferred in either of
two book-entry systems: the commercial book-entry system (TRADES) and TREASURY
DIRECT. The securities will be maintained and transferred at their original par
amount, i.e., not at their inflation-adjusted value. STRIPS components will be
maintained and transferred in TRADES at their value based on the original par
amount of the fully constituted security.
LOAN PARTICIPATIONS AND ASSIGNMENTS [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.] [FOCUS GROWTH PORTFOLIO?] include investments in
fixed and floating rate loans ("Loans") arranged through private negotiations
between an issuer of sovereign or corporate debt obligations and one or more
financial institutions ("Lenders"). Investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of all or a portion of Loans ("Assignments") from third parties. In
the case of Participations, the Portfolio will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In the event of the insolvency of the Lender selling
a Participation, the Portfolio may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
The Portfolio will acquire Participations only if the Lender interpositioned
between the Portfolio and the borrower is determined by the Adviser/Subadviser
to be creditworthy. When the Portfolio purchases Assignments from Lenders it
will acquire direct rights against the borrower on the Loan. Because Assignments
are arranged through private negotiations between potential assignees and
potential assignors, however, the rights and obligations acquired by the
Portfolio as the purchaser of an Assignment may differ from, and be more limited
than, those held by the assigning Lender. Because there is no liquid market for
such securities, the Portfolio anticipates that such securities could be sold
only to a limited number of institutional investors. The lack of a liquid
secondary market may have an adverse impact on the value of such securities and
the Portfolio's ability to dispose of
B-19
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particular Assignments or Participations when necessary to meet the Portfolio's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Portfolio to assign a value to these securities for purposes
of valuing the Portfolio and calculating its net asset value.
The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions. Loan
participations and other direct investments may not be in the form of securities
or may be subject to restrictions on transfer, and there may be no liquid market
for such securities, as described above.
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)] [FOCUS GROWTH PORTFOLIO?] are effected by selling a
security that a Portfolio does not own. A short sale is "against the box" to the
extent that a Portfolio contemporaneously owns, or has the right to obtain
without payment, securities identical to those sold short. A short sale against
the box of an "appreciated financial position" (e.g., appreciated stock)
generally is treated as a sale by the Portfolio for federal income tax purposes.
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 against the box, if, as a result, more than 25%
of its total assets would be subject to such short sales. When a Portfolio makes
a short sale, the proceeds it receives from the sale will be held on behalf of a
broker until the Portfolio replaces the borrowed securities. To deliver the
securities to the buyer, a Portfolio will need to arrange through a broker to
borrow the securities and, in so doing, a Portfolio will become obligated to
replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. A Portfolio may have to pay a premium
to borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced. A Portfolio's obligation to replace the
securities borrowed in connection with a short sale will be secured by
collateral in the form of cash or liquid securities held in a segregated account
in the name of the broker. In addition, such Portfolio will place in a
segregated account an amount of cash or liquid securities equal to the
difference, if any, between (1) the market value of the securities sold at the
time they were sold short and (2) any cash or liquid securities deposited as
collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). In the event that the value of the collateral
deposited with the broker, plus the value of the assets in the segregated
account should fall below the value of the securities sold short, additional
amounts to cover the difference will be placed in the segregated accounts. Short
sales by the Portfolio involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
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<PAGE>
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.
ILLIQUID SECURITIES. Each of the Portfolios may invest no more than 15%
(10% in the case of the CASH MANAGEMENT PORTFOLIO) of its net assets, determined
as of the date of purchase, in illiquid securities including repurchase
agreements that have a maturity of longer than seven days 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 that are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period. Securities 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
generally will 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, 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).
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act for which there is a readily available market will not be deemed
to be illiquid. The Adviser or Subadviser, as the case may be, will monitor the
liquidity of such restricted securities subject to the
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<PAGE>
supervision of the Board of Trustees of the Trust. In reaching liquidity
decisions, the Adviser, or Subadviser, as the case may be, will consider, INTER
ALIA, pursuant to guidelines and procedures established by the Trustees, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (E.G., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Commercial paper issues in which a Portfolio may invest include
securities issue 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. The CASH MANAGEMENT PORTFOLIO'S 10%
limitation on investments in illiquid securities includes Section 4(2) paper
other than Section 4(2) paper that the Adviser has determined to be liquid
pursuant to guidelines established by the Trustees. The Portfolio's Board of
Trustees delegated to the Adviser 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 Adviser to take into
account the same factors described above for other restricted securities and
require the Adviser to perform the same monitoring and reporting functions.
REITS pool investors' funds for investment primarily in income producing
real estate or real estate related loans or interests. A REIT is not taxed on
income distributed to shareholders if it complies with various requirements
relating to its organization, ownership, assets and income and with the
requirement that it distribute to its shareholders at least 95% of its taxable
income (other than net capital gains) for each taxable year. REITs can generally
be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs
invest the majority of their assets directly in real property and derive their
income primarily from rents. Equity REITs can also realize capital gains by
selling property that has appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity REITs and Mortgage REITs. Equity REITs may be affected by changes in
the value of the underlying property owned by the trusts, while Mortgage REITs
may be affected by the quality of credit extended. Equity and Mortgage REITs are
dependent upon management skill, may not be diversified and are subject to
project financing risks. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code") and to maintain exemption from
registration under the 1940 Act. Changes in interest rates may also affect the
value of the debt securities in the Portfolio's portfolio.
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By investing in REITs indirectly through the Portfolio, a shareholder will bear
not only his proportionate share of the expense of the Portfolio, but also,
indirectly, similar expenses of the REITs, including compensation of management.
FLOATING RATE OBLIGATIONS. These securities have a coupon rate that
changes at least annually and generally more frequently. The coupon rate is set
in relation to money market rates. The obligations, issued primarily by banks,
other corporations, governments and semi-governmental bodies, may have a
maturity in excess of one year. In some cases, the coupon rate may vary with
changes in the yield on Treasury bills or notes or with changes in LIBOR (London
Interbank Offering Rate). The Adviser considers floating rate obligations to be
liquid investments because a number of U.S. and foreign securities dealers make
active markets in these securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When-issued or
delayed-delivery transactions call for the purchase or sale of securities at an
agreed-upon price on a specified future date. 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 such transactions are
negotiated, the price (which is generally expressed in yield terms) is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. During the period between commitment by a Portfolio
and settlement (generally within two months but not to exceed 120 days), no
payment is made for the securities purchased by the purchaser, and no interest
accrues to the purchaser from the transaction. Such securities are subject to
market fluctuation, and the value at delivery may be less than the purchase
price. A Portfolio will maintain a segregated account with its custodian,
consisting of cash or liquid securities at least equal to the value of purchase
commitments until payment is made. A Portfolio will likewise segregate liquid
assets in respect of securities sold on a delayed delivery basis.
A Portfolio will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of entering
into the obligation. When a Portfolio engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in a Portfolio losing
the opportunity to obtain a price and yield considered to be advantageous. If a
Portfolio chooses to (i) dispose of the right to acquire a when-issued security
prior to its acquisition or (ii) dispose of its right to deliver or receive
against a firm commitment, it may incur a gain or loss. (At the time a Portfolio
makes a commitment to purchase or sell a security on a when-issued or firm
commitment basis, it records the transaction and reflects the value of the
security purchased, or if a sale, the proceeds to be received in determining its
net asset value.)
To the extent a Portfolio engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Portfolio enters into such transactions 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,
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changes in interest rates in a direction other than that expected by the
Adviser/Subadviser 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. An example of a
when-issued or delayed delivery security 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.
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. Generally, a Hybrid Instrument will be a debt
security, preferred stock, depository share, trust certificate, certificate of
deposit or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity, redemption
or retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles or commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, the Portfolio could limit the downside risk of the security
by establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest rates were
to rise significantly. The purpose of this arrangement, known as a structured
security with an embedded put option, would be to give the Portfolio the desired
European bond exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions
B-24
<PAGE>
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.
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
B-25
<PAGE>
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 its total assets.
Hybrid Instruments include:
STRUCTURED INVESTMENTS which are organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified
instruments (such as commercial bank loans) and the issuance by that
entity of one or more classes of securities ("Structured Securities")
backed by, or representing interests in, the underlying instruments. The
cash flow on the underlying instruments may be apportioned among the
newly issued Structured Securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments
made with respect to Structured Securities is dependent on the extent of
the cash flow on the underlying instruments. Because Structured
Securities of the type typically involve no credit enhancement, their
credit risk generally will be equivalent to that of the underlying
instruments. Investments in Structured Securities are generally of a
class of Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated
Structured Securities typically have higher yields and present greater
risks than unsubordinated Structured Securities. Structured Securities
are typically sold in private placement transactions, and there currently
is no active trading market for Structured Securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.
WEBS. World Equity Benchmark Shares ("WEBS") are shares of an investment
company that invests substantially all of its assets in securities
included in the MSCI indices for specified countries. The market prices
of WEBS are expected to fluctuate in accordance with both changes in the
net asset values of their underlying indices and supply and demand of
WEBS on the American Stock Exchange. In the event substantial market or
other disruptions affecting WEBS should occur in the future, the
liquidity and value of Portfolio's shares could also be substantially and
adversely affected, and the Fund's ability to provide investment results
approximating the performance of securities in the EAFE Index could be
impaired.
B-26
<PAGE>
SPDRS. Standard & Poor's Depositary Receipts ("SPDRs") are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a
trust established to accumulate and hold a portfolio of common stocks
intended to track the price performance and dividend yield of the S&P
500. SPDRs may be used for several reasons, including but not limited to
facilitating the handling of cash flows or trading, or reducing
transaction costs. The use of SPDRs would introduce additional risk, as
the price movement of the instrument does not perfectly correlate with
the price action of the underlying index.
INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, FLOORS AND COLLARS. Entering
into interest-rate swaps or mortgage swaps or purchasing interest-rate caps,
floors or collars is often done to protect against interest rate fluctuations
and hedge against fluctuations in the fixed income market. A Portfolio will
generally enter into these hedging transactions primarily to preserve a return
or spread on a particular investment or portion of the portfolio and to protect
against any increase in the price of securities the Portfolio anticipates
purchasing at a later date. Interest-rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating-rate payments for fixed-rate payments.
Since interest-rate swaps are individually negotiated, the Portfolios expect to
achieve an acceptable degree of correlation between their respective portfolio
investments and their interest-rate positions. Portfolios will enter into
interest-rate swaps only on a net basis, which means that the two payment
streams are netted out, with the Portfolios receiving or paying, as the case may
be, only the net amount of the two payments. Interest-rate swaps do not involve
the delivery of securities, other underlying assets or principal. Accordingly,
the risk of loss with respect to interest-rate swaps is limited to the net
amount of interest payments that the Portfolio is contractually obligated to
make. If the other party to an interest-rate swap defaults, the Portfolio's risk
of loss consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive, if any. The use of interest-rate swaps is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
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 a 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. An interest-rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.
Portfolios will not enter into any mortgage swap, interest-rate swap, cap
or floor transaction unless the unsecured commercial paper, senior debt, or the
claims paying ability of the other party
B-27
<PAGE>
thereto is rated either AA or A-1 or better by Standard & Poor's or Aa or P-1 or
better by Moody's, or is determined to be of equivalent quality by the
applicable Subadviser.
EQUITY SWAPS are typically entered into for the purpose of investing in a
market without owning or taking physical custody of securities in circumstances
in which direct investment is restricted for legal reasons or is otherwise
impracticable. The counterparty to an equity swap contract will typically be a
bank, investment banking firm or broker/dealer. The counterparty will generally
agree to pay the Portfolio the amount, if any, by which the notional amount of
the equity swap contract would have increased in value had it been invested in
the particular stocks, plus the dividends that would have been received on those
stocks. The Portfolio will agree to pay to the counterparty a floating rate of
interest on the notional amount of the equity swap contract plus the amount, if
any, by which that notional amount would have decreased in value had it been
invested in such stocks. Therefore, the return to the Portfolio on any equity
swap contract should be the gain or loss on the notional amount plus dividends
on the stocks less the interest paid by the Portfolio on the notional amount.
A Portfolio will enter into equity 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. Payments
may be made at the conclusion of an equity swap contract or periodically during
its term. Equity swaps do not involve the delivery of securities or other
underlying assets. Accordingly, the risk of loss with respect to equity swaps is
limited to the net amount of payments that a Portfolio is contractually
obligated to make. If the other party to an equity swap defaults, the
Portfolio's risk of loss consists of the net amount of payment that the
Portfolio is contractually entitled to receive, if any. The net amount of the
excess, if any, of the Portfolio's obligations over its entitlements with
respect to each equity swap will be accrued on a daily basis and an amount of
cash or liquid assets, having an aggregate net asset value at least equal to
such accrued excess will be maintained in a segregated account by the
Portfolio's custodian. Inasmuch as these transactions are entered into for
hedging purposes or are offset by segregated cash or liquid assets, as permitted
by applicable law, the Portfolio believes that transactions do not constitute
senior securities under the Act and, accordingly, will not treat them as being
subject to the Portfolio's borrowing restrictions.
SECURITIES LENDING. 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
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<PAGE>
securities fail financially. However, these loans of portfolio securities will
be made only to firms deemed by the Adviser/Subadviser 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.
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.
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, the Diversified Fixed Income Portfolio [AND THE FOCUS GROWTH
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 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,
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<PAGE>
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.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements may be
entered into with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Adviser/Subadviser 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."
ROLL TRANSACTIONS involve the sale of mortgage or other asset-backed
securities ("roll securities") with the commitment to purchase 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.
B-30
<PAGE>
Roll transactions 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 roll transactions will depend upon the
Adviser/Subadviser's ability to predict correctly interest rates and in the case
of mortgage dollar rolls, mortgage prepayments. For these reasons, there is no
assurance that dollar rolls can be successfully employed.
STANDBY COMMITMENTS. Standby commitments are put options that entitle
holders to same day settlement at an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A Portfolio may acquire standby commitments to enhance the liquidity
of portfolio securities, but only when the issuers of the commitments present
minimal risk of default. Ordinarily, the Portfolio may not transfer a standby
commitment to a third party, although it could sell the underlying municipal
security to a third party at any time. A Portfolio may purchase standby
commitments separate from or in conjunction with the purchase of securities
subject to such commitments. In the latter case, the Portfolio would pay a
higher price for the securities acquired, thus reducing their yield to maturity.
Standby commitments will not affect the dollar-weighted average maturity of the
Portfolio, or the valuation of the securities underlying the commitments.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. The
Adviser/Subadviser 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.
WARRANTS 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 can generally 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. Although the Portfolios may not
invest directly in warrants, such Portfolios may invest in securities that are
acquired as part of a unit consisting of a combination of fixed income and
equity securities or securities to which warrants are attached.
NON-DIVERSIFIED STATUS. Each MULTI-MANAGED SEASONS PORTFOLIO,
MULTI-MANAGED SEASONS SELECT PORTFOLIO except for the DIVERSIFIED FIXED INCOME
PORTFOLIO and MULTI-MANAGED SEASONS FOCUSED PORTFOLIO have registered as
"non-diversified" investment companies. As a result, under the 1940 Act, the
Portfolios are limited only by their own investment restrictions as to the
percentage of their assets that may be invested in the securities of any one
issuer. However, in spite of the
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<PAGE>
flexibility under the 1940 Act, the Portfolios would still have to meet
quarterly diversification requirements under the Code in order for the
Portfolios to qualify as a regulated investment company. As a result of the
Code's diversification requirements, the Portfolios may not have the latitude to
take full advantage of the relative absence of 1940 Act diversification
requirements.
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, THE INTERNATIONAL EQUITY PORTFOLIO AND THE
JANUS/GROWTH AND SUNAMERICA/AGGRESSIVE GROWTH COMPONENTS OF EACH MULTI-MANAGED
SEASONS PORTFOLIO [and Multi-Managed Seasons Focused Portfolio?] MAY INVEST
WITHOUT 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.]
ADRS, GDRS, AND EDRS. Foreign securities include, among other things,
American Depositary Receipts ("ADRs") and other Depositary Receipts, including
Global Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and
others (which, together with ADRs, GDRs and EDRs, are hereinafter collectively
referred to as "Depositary Receipts"), to the extent that such Depositary
Receipts become available. ADRs are securities, typically issued by a U.S.
financial institution (a "depositary"), that evidence ownership interests in a
security or a pool of securities issued by a foreign issuer (the "underlying
issuer") and deposited with the depositary. ADRs include American Depositary
Shares and New York Shares and may be "sponsored" or "unsponsored." Sponsored
ADRs are established jointly by a depositary and the underlying issuer, whereas
unsponsored ADRs may be established by a depositary without participation by the
underlying issuer. GDRs, EDRs and other types of Depositary Receipts are
typically issued by foreign depositaries, although they may also be issued by
U.S. depositaries, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a U.S. corporation. Holders of
unsponsored Depositary Receipts generally bear all the costs associated with
establishing the unsponsored Depositary Receipt. The depositary of unsponsored
Depositary Receipts is under no obligation to distribute shareholder
communications received from the underlying issuer or to pass through to the
holders of the unsponsored Depositary Receipt voting rights with respect to the
deposited securities or pool of securities. Depositary Receipts are not
necessarily denominated in the same currency as the underlying securities to
which they may be connected. Generally, Depositary Receipts in registered form
are designed for use in the U.S. securities market and Depositary Receipts in
bearer form are designed for use in securities markets outside the United
States. A Portfolio may invest in sponsored and unsponsored Depositary Receipts.
For purposes of a Portfolio's investment policies, the Portfolio's investments
in Depositary Receipts will be deemed to be investments in the underlying
securities.
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<PAGE>
OPTIONS AND FUTURES are contracts involving the right to receive or the
obligation to deliver assets or money depending on the performance of one or
more underlying assets or a market or economic index. An option gives its owner
the right, but not the obligation, to buy ("call") or sell ("put") a specified
amount of a security at a specified price within in a specified time period. A
futures contract is an exchange-traded legal contract to buy or sell a standard
quantity and quality of a commodity, financial instrument, index, ETC. at a
specified future date and price. Options and Futures (defined below) are
generally used for either hedging or income enhancement purposes.
Options can either purchased or written (I.E., sold). A call option
written by a Portfolio obligates a Portfolio to sell specified securities to the
holder of the option at a specified price if the option is exercised at any time
before the expiration date. After any such sales up to 25% of a Portfolio's
total assets may be subject to calls. All call options written by a Portfolio
must be "covered," which means that a Portfolio will own the securities subject
to the option as long as the option is outstanding. The purpose of writing
covered call options is to realize greater income than would be realized on
portfolio securities transactions alone. However, in writing covered call
options for additional income, a Portfolio may forego the opportunity to profit
from an increase in the market price of the underlying security.
A put option written by a Portfolio obligates a Portfolio to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Portfolio must be "covered," which means that the Portfolio will deposit cash,
U.S. government securities or other high-grade debt securities (I.E., securities
rated in one of the top three categories by Moody's or Standard & Poor's, or, if
unrated, deemed by the Adviser or Subadviser to be of comparable credit quality)
with a value at least equal to the exercise price of the put option in a
segregated account. The purpose of writing such options is to generate
additional income for a Portfolio. However, in return for the option premium, a
Portfolio accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
The following is a more detailed information concerning options, futures
and options on futures:
OPTIONS ON SECURITIES. When a Portfolio writes (I.E., sells) a
call option ("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
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unexercised, because a Portfolio retains the underlying security and the
premium received. If a Portfolio could not effect a closing purchase
transaction due to lack of a market, it would hold the callable
securities until the call expired or was exercised.
When a Portfolio purchases a call (other than in a closing
purchase transaction), it pays a premium and has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. A Portfolio
benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid and the
call is exercised. If the call is not exercised or sold (whether or not
at a profit), it will become worthless at its expiration date and a
Portfolio will lose its premium payment and the right to purchase the
underlying investment.
A put option on securities gives the purchaser the right to sell,
and the writer the obligation to buy, the underlying investment at the
exercise price during the option period. Writing a put covered by
segregated liquid assets equal to the exercise price of the put has the
same economic effect to a Portfolio as writing a covered call. The
premium a Portfolio receives from writing a put option represents a
profit as long as the price of the underlying investment remains above
the exercise price. However, a Portfolio has also assumed the obligation
during the option period to buy the underlying investment from the buyer
of the put at the exercise price, even though the value of the investment
may fall below the exercise price. If the put expires unexercised, a
Portfolio (as the writer of the put) realizes a gain in the amount of the
premium. If the put is exercised, a Portfolio must fulfill its obligation
to purchase the underlying investment at the exercise price, which will
usually exceed the market value of the investment at that time. In that
case, a Portfolio may incur a loss, equal to the sum of the sale price of
the underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.
A Portfolio may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit a Portfolio to write another put option
to the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Portfolio. A Portfolio will realize a profit or loss
from a closing purchase transaction if the cost of the transaction is
less or more than the premium received from writing the option.
When a Portfolio purchases a put, it pays a premium and has the
right to sell the underlying investment to a seller of a corresponding
put on the same investment during the put period at a fixed exercise
price. Buying a put on an investment a Portfolio owns enables the
Portfolio to protect itself during the put period against a decline in
the value of the underlying investment below the exercise price by
selling such underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is
equal to or above the exercise
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price and as a result the put is not exercised or resold, the put will
become worthless at its expiration date, and the Portfolio will lose its
premium payment and the right to sell the underlying investment pursuant
to the put. The put may, however, be sold prior to expiration (whether or
not at a profit).
Buying a put on an investment a Portfolio does not own permits the
Portfolio either to resell the put or buy the underlying investment and
sell it at the exercise price. The resale price of the put will vary
inversely with the price of the underlying investment. If the market
price of the underlying investment is above the exercise price and as a
result the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in the stock market, a
Portfolio could exercise or sell the put at a profit to attempt to offset
some or all of its loss on its portfolio securities.
When writing put options on securities, to secure its obligation
to pay for the underlying security, a Portfolio will deposit in escrow
liquid assets with a value equal to or greater than the exercise price of
the underlying securities. A Portfolio therefore forgoes the opportunity
of investing the segregated assets or writing calls against those assets.
As long as the obligation of a Portfolio as the put writer continues, it
may be assigned an exercise notice by the broker-dealer through whom such
option was sold, requiring a Portfolio to take delivery of the underlying
security against payment of the exercise price. A Portfolio has no
control over when it may be required to purchase the underlying security,
since it may be assigned an exercise notice at any time prior to the
termination of its obligation as the writer of the put. This obligation
terminates upon expiration of the put, or such earlier time at which a
Portfolio effects a closing purchase transaction by purchasing a put of
the same series as that previously sold. Once a Portfolio has been
assigned an exercise notice, it is thereafter not allowed to effect a
closing purchase transaction.
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. Puts and calls are also written and
purchased 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
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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.
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. 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.
YIELD CURVE OPTIONS. The trading of yield curve options is subject
to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if
the yield of one of the underlying securities remains constant, if the
spread moves in a direction or to an extent not anticipated. Yield curve
options are traded over-the-counter and because they have been only
recently introduced, established trading markets for these securities
have not yet developed. Because these securities are traded
over-the-counter, the Securities and Exchange Commission ("SEC") has
taken the position that yield curve options are illiquid and, therefore,
cannot exceed the SEC illiquidity ceiling. Portfolio that may
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enter into yield curve options transactions will cover such transactions
as described above.
FUTURES. Interest rate futures contracts, foreign currency futures
contracts and stock and bond index futures contracts, including futures
on U.S. government securities (together, "Futures") are used primarily
for hedging purposes and from time to time for income enhancement. Upon
entering into a Futures transaction, a Portfolio will be required to
deposit an initial margin payment with the futures commission merchant
(the "futures broker"). Futures are also often used to adjust exposure to
various equity or fixed income markets or as a substitute for investments
in underlying cash markets. 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 generally
for hedging purposes to attempt to protect against the effects of
interest rate changes on a Portfolio's current or intended investments in
fixed-income securities. For example, if a Portfolio owned long-term
bonds and interest rates were expected to increase, that Portfolio might
sell interest rate futures contracts. Such a sale would have much the
same effect as selling some of the long-term bonds in that Portfolio's
portfolio. However, since the Futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique
allows a Portfolio to hedge its interest rate risk without having to sell
its portfolio securities. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value of that
Portfolio's interest rate futures contracts would be expected to increase
at approximately the same rate, thereby keeping the net asset value of
that Portfolio from declining as much as it otherwise would have. On the
other hand, if interest rates were expected to decline, interest rate
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of long-term bonds at higher prices. Since the fluctuations in
the value of the interest rate futures contracts should be similar to
that of long-term bonds, a Portfolio could protect itself against the
effects of the anticipated rise in the value of long-term bonds without
actually buying them until the necessary cash became available or the
market had stabilized. At that time, the interest rate futures contracts
could be liquidated and that Portfolio's cash reserves could then be used
to buy long-term bonds on the cash market.
Purchases or sales of stock or bond index futures contracts are
used for hedging purposes to attempt to protect a Portfolio's current or
intended investments
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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.
Foreign currency futures contracts are generally entered into for
hedging or income enhancement purposes to attempt to protect a
Portfolio's 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. For example, a Portfolio may sell futures contracts on
a foreign currency when it holds securities denominated in such currency
and it anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting adverse
effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the Futures contracts. However, if the
value of the foreign currency increases relative to the dollar, the
Portfolio's loss on the foreign currency futures contract may or may not
be offset by an increase in the value of the securities since a decline
in the price of the security stated in terms of the foreign currency may
be greater than the increase in value as a result of the change in
exchange rates.
Conversely, 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 include options on interest rate futures
contracts, stock and bond index futures contracts and foreign currency
futures contracts.
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
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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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("Forward Contracts")
involves bilateral obligations of one party to purchase, and another party to
sell, a specific currency at a future date (which may be any fixed number of
days from the date of the contract agreed upon by the parties), at a price set
at the time the contract is entered into. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. No price is paid or received upon the
purchase or sale of a Forward Contract. Portfolios may use Forward Contracts to
reduce certain risks of their respective investments and/or to attempt to
enhance return.
Forward Contracts are generally used 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.
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<PAGE>
Forward Contracts may also be entered into 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.
Forward Contracts are also used 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 may also hedge investments
denominated in a foreign currency by entering into forward currency contracts
with respect to a foreign currency that is expected to correlate to the currency
in which the investments are denominated ("proxy hedging").
The Portfolios will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that a
Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Trust's custodian will place cash or liquid securities
in a separate account of the Portfolio having a value equal to the aggregate
amount of the Portfolio's commitments under Forward Contracts entered into with
respect to position hedges and cross-hedges. If the value of the securities
placed in a separate account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such contracts.
As an alternative to maintaining all or part of the separate account, a
Portfolio may purchase a call option permitting the Portfolio to purchase the
amount of foreign currency being hedged by a forward sale contract at a price no
higher than the Forward Contract price or the Portfolio may purchase a put
option permitting the Portfolio to sell the amount of foreign currency subject
to a forward purchase contract at a price as high or higher than the Forward
Contract price. Unanticipated changes in currency prices may result in poorer
overall performance for a Portfolio than if it had not entered into such
contracts.
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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.
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.
In addition, 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
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federal and state laws. The Prospectus and SAI, as appropriate, will be amended
or supplemented as appropriate to discuss any such new investments.
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. [DOES FOCUS GROWTH PORTFOLIO HAVE THE 25% LIMIT?]
In addition, 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.
SUPPLEMENTAL INFORMATION ABOUT DERIVATIVES AND THEIR USE
The Trust's custodian, or a securities depository acting for the
custodian, will act as each 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
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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.
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 Adviser/Subadviser'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
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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 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 Adviser/Subadviser 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.
SUPPLEMENTAL INFORMATION CONCERNING HIGH-YIELD, HIGH-RISK BONDS AND SECURITIES
RATINGS.
HIGH-YIELD, HIGH-RISK BONDS may 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 exercised 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
B-44
<PAGE>
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.
SunAmerica Asset Management Corp. ("SAAMCo" or the "Adviser") or
Subadviser attempts to reduce these risks through diversification of the
applicable Portfolio and by credit analysis of each issuer, as well as by
monitoring broad economic trends and corporate and legislative developments. If
a high-yield bond previously acquired by a Portfolio is downgraded, the Adviser
or Subadviser, as appropriate, will evaluate the security and determine whether
to retain or dispose of it.
The following are additional restrictions and/or requirements concerning
the ratings of securities:
- 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).
B-45
<PAGE>
- 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.
- The FOCUS GROWTH PORTFOLIO currently invests 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 or in
instruments issued, guaranteed or insured by the U.S.
government, its agencies or instrumentalities.
B-46
<PAGE>
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER RATINGS. Moody's employs the designations "Prime-1,"
"Prime-2" and "Prime-3" to indicate commercial paper having the highest capacity
for timely repayment. Issuers rated Prime-1 have a superior capacity for
repayment of short-term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. Issues rated
Prime-2 have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
Issuers rated Prime-3 have an acceptable capacity for repayment of
short-term promissory obligations. The effect of industry characteristics and
market composition may be more pronounced. Variability in earning and
profitability may result in changes in level of debt protection measurements and
the requirement for relatively high financial leverage. Adequate alternate
liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks 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.
B-47
<PAGE>
Standard and Poor's ratings of commercial paper are graded into four
categories ranging from A for the highest quality obligations to D for the
lowest. A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 - This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation. A-2 - Capacity for timely payments on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated A-1. B - Issues in this category are regarded as having only adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities. C - This rating is assigned to short-term
debt obligations with a doubtful capacity for payment. D - The rating indicates
that the issues 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.
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
B-48
<PAGE>
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 possess 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 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
B-49
<PAGE>
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.
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.
B-50
<PAGE>
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.
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,
B-51
<PAGE>
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), (iii) the Focus Growth Portfolio may borrow for investment
purposes to the maximum extent permissible under the 1940 Act (i.e.,
presently 50% of net assets), and (iv) 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.
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
B-52
<PAGE>
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. [CONFIRM FOR FOCUS GROWTH
PORTFOLIO]
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.
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.
B-53
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION WITH THE TRUST DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
James K. Hunt, *48 Trustee, Chairman and Executive Vice President,
President SunAmerica Investments, Inc.
(1993 - Present); President,
SunAmerica Corporate Finance,
(since January 1994); Trustee,
Chairman and President,
SunAmerica Series Trust (since
1994).
- --------------------------------------------------------------------------------------------------------
Monica C. Lozano, 43 Trustee Associate Publisher, LA OPINION
3257 Purdue Avenue (newspaper publishing concern)
Los Angeles, CA 90066 (since 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, 68 Trustee Retired; Trustee, Anchor Pathway
Fund and SunAmerica Series Trust.
- --------------------------------------------------------------------------------------------------------
William M. Wardlaw, 53 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.
- --------------------------------------------------------------------------------------------------------
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION WITH THE TRUST DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Susan L. Harris, 43 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, 35 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.
- --------------------------------------------------------------------------------------------------------
</TABLE>
B-55
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION WITH THE TRUST DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert M. Zakem, 42 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 _______, 2000 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.
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, 2000.
B-56
<PAGE>
COMPENSATION TABLE
[WILL BE UPDATED]
<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 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
B-57
<PAGE>
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-58
<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> <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%
- ------------------------------------------------------------------------------------------
Mid-Cap Value Portfolio First $250 million 0.850%
-----------------------------------------
Next $250 million 0.800%
- ------------------------------------------------------------------------------------------
</TABLE>
B-59
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PORTFOLIO ADVISORY FEE (AS A PERCENTAGE OF ASSETS)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
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%
- ------------------------------------------------------------------------------------------
Focus Growth Portfolio First $250 million 1.000%
[to be updated] -----------------------------------------
Next $250 million 0.950%
-----------------------------------------
Over $500 million 0.900%
- ------------------------------------------------------------------------------------------
</TABLE>
The term "Assets" means the average daily net assets of each Portfolio.
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, 2000, 1999 and 1998.
ADVISORY FEES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PORTFOLIO 2000 1999 1998*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Managed Growth Portfolio $463,084 $137,424
- ------------------------------------------------------------------------------------
Multi-Managed Moderate Growth $474,482 $135,378
Portfolio
- ------------------------------------------------------------------------------------
Multi-Managed Income/Equity Portfolio $368,615 $101,740
- ------------------------------------------------------------------------------------
Multi-Managed Income Portfolio $256,218 $76,624
- ------------------------------------------------------------------------------------
</TABLE>
B-60
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PORTFOLIO 2000 1999 1998*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation: Diversified Growth $686,471 $208,284
Portfolio
- ------------------------------------------------------------------------------------
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 --
- ------------------------------------------------------------------------------------
Focus Growth Portfolio -- -- --
- ------------------------------------------------------------------------------------
</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 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%. [ANY WAIVER FOR FOCUS GROWTH PORTFOLIO?] 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.
B-61
<PAGE>
For the fiscal year ended March 31, 2000, SunAmerica voluntarily waived
fees or reimbursed expenses, which are not included as part of the advisory fee
table as follows: [UPDATE] 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, 2000, SunAmerica voluntarily
waived fees or reimbursed expenses, which are not included as part of the
advisory fee table as follows: [UPDATE] 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, 2000, and
such recoupments, which are not included as part of the advisory fee table, were
as follows: [UPDATE] 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
Fred Alger Management, Inc. ("Alger"), Bankers Trust Company ("Bankers
Trust"), Goldman Sachs Asset Management ("GSAM"), Goldman Sachs Asset Management
International ("GSAM-International"), Janus Capital Corporation ("Janus"),
Jennison Associates LLC ("Jennison"), Lord, Abbett & Co. ("Lord Abbett"),
Marsico Capital Management, LLC ("Marsico"), 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 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)
- -------------------------------------------------------------------------------------------
</TABLE>
B-62
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT ALLOCATED
PORTFOLIO AMONG THE FOLLOWING MANAGERS
- -------------------------------------------------------------------------------------------
<S> <C>
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 Putnam
Portfolio
- -------------------------------------------------------------------------------------------
Stock Portfolio T. Rowe Price
- -------------------------------------------------------------------------------------------
Large Cap Growth Portfolio Bankers Trust
GSAM
Janus
- -------------------------------------------------------------------------------------------
Large Cap Composite Portfolio Bankers Trust
SunAmerica
T. Rowe Price
- -------------------------------------------------------------------------------------------
</TABLE>
B-63
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT ALLOCATED
PORTFOLIO AMONG THE FOLLOWING MANAGERS
- -------------------------------------------------------------------------------------------
<S> <C>
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 Portfolio Bankers Trust
SunAmerica
WMC
- -------------------------------------------------------------------------------------------
Cash Management Portfolio SunAmerica
- -------------------------------------------------------------------------------------------
Focus Growth Portfolio Alger
Jennison
Marsico
- -------------------------------------------------------------------------------------------
</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. Alger is
wholly-owned by its principals. 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 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
B-64
<PAGE>
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. Jennison is wholly-owned by
The Prudential Insurance Company of America. Kansas City Southern Industries,
Inc. ("KCSI"), owns approximately 82% of the outstanding voting stock of Janus,
and is a 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. Thomas F. Marsico
ownes 50% of Marsico's voting stock and Bank of America owns 50% of Marsico's
voting stock. [AAT-PUTNAM?] 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 and Multi-Managed Seasons Focused 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 Seasons Select Portfolio and Multi-Managed Seasons Focused
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.
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.
B-65
<PAGE>
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, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FEE FEE FEE
PORTFOLIO 1998* 1999 2000
- -----------------------------------------------------------------------------------------
<S> <C> <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
- -----------------------------------------------------------------------------------------
Focus Growth Portfolio -- -- --
- -----------------------------------------------------------------------------------------
</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.
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'
B-66
<PAGE>
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 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.
B-67
<PAGE>
SHARES OF THE TRUST
The Trust consists of sixteen 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.
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
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<PAGE>
(generally 4:00 p.m., Eastern time). Each Portfolio calculates the net asset
value of its shares by dividing the total value of its net assets by the shares
outstanding.
Stocks are stated at value based upon closing sales prices reported on
recognized securities exchanges or, for listed securities having no sales
reported and for unlisted securities, upon last reported bid prices.
Non-convertible bonds, debentures, other long-term debt securities and
short-term securities with original or remaining maturities in excess of 60
days, are normally valued at prices obtained for the day of valuation from a
bond pricing service of a major dealer in bonds, when such prices are available;
however, in circumstances in which the Manager deems it appropriate to do so, an
over-the-counter or exchange quotation at the mean of representative bid or
asked prices may be used. Securities traded primarily on securities exchanges
outside the United States are valued at the last sale price on such exchanges on
the day of valuation, or if there is no sale on the day of valuation, at the
last-reported bid price. If a security's price is available from more than one
foreign exchange, a Portfolio uses the exchange that is the primary market for
the security. Short-term securities with 60 days or less to maturity are
amortized to maturity based on their cost to the Trust if acquired within 60
days of maturity or, if already held by the Trust on the 60th day, are amortized
to maturity based on the value determined on the 61st day. Options traded on
national securities exchanges are valued as of the close of the exchange on
which they are traded. Futures and options traded on commodities exchanges are
valued at their last sale price as of the close of such exchange. Other
securities are valued on the basis of last sale or bid price (if a last sale
price is not available) in what is, in the opinion of the Manager, the broadest
and most representative market, that may be either a securities exchange or the
over-the-counter market. Where quotations are not readily available, securities
are valued at fair value as determined in good faith in accordance with
procedures adopted by the Board of Trustees. The fair value of all other assets
is added to the value of securities to arrive at the respective Portfolio's
total assets.
A Portfolio's liabilities, including proper accruals of expense items,
are deducted from total assets.
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.
B-69
<PAGE>
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.
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.
B-70
<PAGE>
2000 BROKERAGE COMMISSIONS
[UPDATE]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
PERCENTAGE OF AMOUNT OF
AMOUNT PAID TO COMMISSIONS TRANSACTIONS
AGGREGATE AFFILIATED PAID TO INVOLVING
PORTFOLIO BROKERAGE BROKER- AFFILIATED PAYMENT OF
COMMISSIONS DEALERS* BROKER-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 $165,459 $28 0.02% 0.00%
Growth
- -------------------------------------------------------------------------------------------------------------------
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+ - - - -
- -------------------------------------------------------------------------------------------------------------------
Focus Growth - - - -
- -------------------------------------------------------------------------------------------------------------------
</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.
B-71
<PAGE>
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.
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
B-72
<PAGE>
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.
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 1999 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-73
<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.
Incorporated herein by reference to Post-Effective Amendment No. 6 to
the Registrant's Registration Statement on Form N-1A (File No.
333-08653) filed on July 15, 1999.
(d)(iv) Subadvisory Agreement between SunAmerica and Fred Alger Management,
Inc. To be filed by amendment.
(d)(v) Subadvisory Agreement between SunAmerica and Jennison Associates
LLC. To be filed by amendment.
(d)(vi) Subadvisory Agreement between SunAmerica and Marsico Capital
Management, LLC. To be filed by amendment.
(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.
(p) Code of Ethics. Incorporated herein by reference to Post-Effective
Amendment No. 24 to SunAmerica Style Select Series, Inc. Registration
Statement on Form N-1A (File No. 333-11283) filed on April 19, 2000.
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>
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Trust to procure a judgment in its favor by
reason of the fact that such Person is or was such Trustee or officer or an
employee or agent of the Trust, or is or was serving at the request of the Trust
as a Trustee, officer, employee or agent of another corporation, partnership,
joint venture, Trust or other enterprise, against expenses (including attorneys'
fees), actually and reasonably incurred by such Person in connection with the
defense or settlement of such action or suit if such Person acted in good faith
and in a manner such Person reasonably believed to be in or not opposed to the
best interests of the Trust, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such Person shall have been
adjudged to be liable for negligence or misconduct in the performance of such
Person's duty to the Trust unless and only to the extent that the court in which
such action or suit was brought, or any other court having jurisdiction in the
premises, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such Person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such Person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such Person in connection therewith,
without the necessity for the determination as to the standard of conduct as
provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon a
determination that indemnification of the Trustee or officer is proper in view
of the standard of conduct set forth in subparagraph (a) or (b). Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Trustees who were disinterested and not parties to such action,
suit or proceedings, or (ii) if such a quorum of disinterested Trustees so
directs, by independent legal counsel in a written opinion, and any
determination so made shall be conclusive and binding upon all parties.
(e) Expenses incurred in defending a civil or criminal action, writ or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such
amount unless it shall ultimately be determined that such Person is entitled to
be indemnified by the Trust as authorized herein. Such determination must be
made by disinterested Trustees or independent legal counsel. Prior to any
payment being made pursuant to this paragraph, a majority of quorum of
disinterested, non-party Trustees of the Trust, or an independent legal counsel
in a written opinion, shall determine, based on a review of readily available
facts that there is reason to believe that the indemnitee ultimately will be
found entitled to indemnification.
(f) Agents and employees of the Trust who are not Trustees or officers of the
Trust may be
3
<PAGE>
indemnified under the same standards and procedures set forth above, in the
discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed exclusive
of any other rights to which those indemnified may be entitled and shall
continue as to a Person who has ceased to be a Trustee or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
Person.
(h) Nothing in the Declaration or in these By-Laws shall be deemed to
protect any Trustee or officer of the Trust against any liability to the
Trust or to its Shareholders to which such Person would otherwise be subject
by reason of willful malfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Person's office.
(i) The Trust shall have power to purchase and maintain insurance on behalf of
any Person against any liability asserted against or incurred by such Person,
whether or not the Trust would have the power to indemnify such Person against
such liability under the provisions of this Article. Nevertheless, insurance
will not be purchased or maintained by the Trust if the purchase or maintenance
of such insurance would result in the indemnification of any Person in
contravention of any rule or regulation and/or interpretation of the Securities
and Exchange Commission.
* * * * * * * * * * * * * * *
The Investment Advisory and Management Agreement provides that in absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties involved in the conduct of office on the part of the
Adviser (and its officers, directors, agents, employees, controlling persons,
shareholders and any other person or entity affiliated with the Adviser) the
Adviser shall not be subject to liability to the Trust or to any shareholder of
the Trust or to any other person for any act or omission in the course of, or
connected with, rendering services, including without limitation, any error of
judgment or mistake or law or for any loss suffered by any of them in connection
with the matters to which each Agreement relates, except to the extent specified
in Section 36(b) of the Investment Company Act of 1940 concerning loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services.
Certain of the Subadvisory Agreements provide for similar indemnification of the
Subadviser by the Adviser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
4
<PAGE>
in the Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 26. Business And Other Connections of Adviser.
SunAmerica Asset Management Corp. ("SunAmerica"), the Adviser of the Trust, is
primarily in the business of providing investment management, advisory and
administrative services. Reference is made to the most recent Form ADV and
schedules thereto of SunAmerica on file with the Commission
(File No. 801-19813) for a description of the names and employment of the
directors and officers of SunAmerica and other required information.
Bankers Trust Company, Fred Alger Management, Inc., Goldman Sachs Asset
Management, Janus Capital Corporation, Jennison Associates LLC, Lord, Abbett
& Co., Marsico Capital Management, LLC, Putnam Investment Management, Inc., T.
Rowe Price Associates, Inc., and Wellington Management Company, the
Subadvisers of certain of the Portfolios of the Trust, are primarily engaged
in the business of rendering investment advisory services. Reference is
made to the most recent Form ADV and schedules thereto on file with the
Commission for a description of the names and employment of the directors
and officers of Bankers Trust Company, Goldman Sachs Asset Management, Janus
Capital Corporation, Lord, Abbett & Co., Putnam Investment Management, Inc.,
T. Rowe Price Associates, Inc., and Wellington Management Company, and other
required information:
FILE NO.
Fred Alger Management, Inc. 801-56308
Goldman Sachs Asset Management 801-16048
Goldman Sachs Asset Management 801-38157
International
Janus Capital Corporation 801-3991
Jennison Associates LLC. 801-05608
Lord, Abbett & Co. 801-6997
Marsico Capital Management, LLC 801-54914
5
<PAGE>
T. Rowe Price Associates, Inc. 801-856
Putnam Investment Management, Inc. 801-7974
Wellington Management Company 801-15908
Reference is made to Post-Effective Amendment No. 26 to BT Investment Funds'
Registration Statement on Form N-1A (File No. 33-07404) filed on October 26,
1998 for a description of the names and employment of the directors and
officers of Bankers Trust Company.
Item 27. Principal Underwriters.
There is no Principal Underwriter for the Registrant.
Item 28. Location of Accounts and Records.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, acts as custodian, transfer agent and dividend paying agent. It
maintains books, records and accounts pursuant to the instructions of the Trust.
Bankers Trust Company has principal offices at 130 Liberty Street (One
Bankers Trust Plaza), New York, New York 10006.
Fred Alger Management, Inc. is located at 1 World Trade Center, 93rd Floor,
New York, New York 10048.
Goldman Sachs Asset Management is located at 85 Broad Street, 12th Floor, New
York, New York 10004.
Goldman Sachs Asset Management International is located at Peterborough
Court, 133 Fleet Street, London EC4A 2BB, England.
Janus Capital Corporation is located at 100 Fillmore Street, Suite 300, Denver,
Colorado 80296-4923.
Jennison Associates LLC is located at 466 Lexington Avenue, New York, New York
10017.
Lord, Abbett & Co. is located in the General Motors Building, at 767 Fifth
Avenue, New York, New York 10153.
Marsico Capital Management, LLC is located at 1200 17th Street, Suite 1300,
Denver, Colorado 80202.
Putnam Investment Management, Inc. is located at One Post Office Square, Boston,
Massachusetts 02109.
SunAmerica Asset Management Corp., is located at The SunAmerica Center, 733
Third Avenue, New York, New York 10017-3204.
T. Rowe Price Associates, Inc. is located at 100 East Pratt Street, Baltimore,
Maryland 21202.
Wellington Management Company, LLP is located at 75 State Street, Boston,
Massachusetts 02109.
Each of the Adviser and Subadvisers maintain the books, accounts and records
required to be maintained pursuant to Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder.
Item 29. Management Services.
Inapplicable.
Item 30. Undertakings
Inapplicable.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
(the"1933 Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Post-Effective Amendment No.7 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 20th day
of April, 2000.
SEASONS SERIES TRUST
By: /s/ Peter C. Sutton
--------------------------------------
Name: Peter C. Sutton
Title: Vice President, Treasurer and Controller
Pursuant to the requirements of the 1933 Act, the Post-Effective Amendment
No.7 to the Registrant's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
* Trustee, Chairman and April 20, 2000
- --------------------- President
James K. Hunt (Principal Executive Officer)
/s/ Peter C. Sutton Vice President, April 20, 2000
- --------------------- Treasurer and Controller
Peter C. Sutton (Principal Financial
and Accounting Officer)
* Trustee April 20, 2000
- ---------------------
Allan L. Sher
* Trustee April 20, 2000
- ---------------------
William M. Wardlaw
* Trustee April 20, 2000
- ---------------------
Monica C. Lozano
</TABLE>
*By: /s/ Robert M. Zakem
--------------------------------
Name: Robert M. Zakem
Title: Attorney-in-Fact
