<PAGE>
As filed with the Securities and Exchange Commission on September 28, 2000
Securities Act File No. 333-08653
Investment Company File Act No. 811-07725
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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. 10 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 12 /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:
Mallary Reznik, Esq. Margery K. Neale, Esq.
SunAmerica Inc. Swidler Berlin Shereff Friedman, LLP
1 SunAmerica Center The Chrysler Building
Los Angeles, CA 90067-6022 405 Lexington Ave., 11th Fl.
New York, NY 10174
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
/X/ on October 16, 2000 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)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE>
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PROSPECTUS
OCTOBER 16, 2000
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[LOGO]
SEASONS SERIES TRUST
(Class B Shares)
- MULTI-MANAGED GROWTH PORTFOLIO
- MULTI-MANAGED MODERATE GROWTH PORTFOLIO
- MULTI-MANAGED INCOME/EQUITY PORTFOLIO
- MULTI-MANAGED INCOME PORTFOLIO
- ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
- FOCUS GROWTH PORTFOLIO
- STOCK PORTFOLIO
- LARGE CAP GROWTH PORTFOLIO
- LARGE CAP COMPOSITE PORTFOLIO
- LARGE CAP VALUE PORTFOLIO
- MID CAP GROWTH PORTFOLIO
- MID CAP VALUE PORTFOLIO
- SMALL CAP PORTFOLIO
- INTERNATIONAL EQUITY PORTFOLIO
- DIVERSIFIED FIXED INCOME PORTFOLIO
- CASH MANAGEMENT PORTFOLIO
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
TRUST HIGHLIGHTS............................................ 3
Q&A................................................. 3
MORE INFORMATION ABOUT THE PORTFOLIOS....................... 15
Investment Strategies............................... 15
Additional Information about the Seasons
Portfolios....................................... 15
GLOSSARY.................................................... 22
Investment Terminology.............................. 22
About the Indices................................... 25
Risk Terminology.................................... 26
MANAGEMENT.................................................. 28
Investment Adviser and Manager...................... 28
Information about the Subadvisers................... 30
Portfolio Management................................ 31
Custodian, Transfer and Dividend Paying Agent....... 43
ACCOUNT INFORMATION......................................... 43
Service Fees........................................ 43
Transaction Policies................................ 43
Dividend Policies and Taxes......................... 44
FINANCIAL HIGHLIGHTS........................................ 45
FOR MORE INFORMATION........................................ 47
</TABLE>
2
<PAGE>
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.
--------------------------------------------------------------------------------
TRUST HIGHLIGHTS
-------------------------------------------------------------------------------
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 15, and the glossary that follows on page 22.
Six of the Portfolios, which we call the "Seasons Portfolios," are available
through the Seasons Variable Annuity Contract. Ten additional Portfolios, which
we call the "Seasons Select Portfolios" and the "Seasons Focused Portfolios,"
are available through the Seasons Select and Seasons Select II Variable Annuity
Contracts.
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>
SEASONS PORTFOLIOS
-------------------------------------------------------------------
PORTFOLIO INVESTMENT GOAL STRATEGY
--------- --------------- --------
<S> <C> <C>
MULTI-MANAGED GROWTH long-term growth of asset allocation
PORTFOLIO capital through Managed
Components
MULTI-MANAGED long-term growth of asset allocation
MODERATE GROWTH capital, with through Managed
PORTFOLIO capital Components
preservation as a
secondary objective
MULTI-MANAGED conservation of asset allocation
INCOME/EQUITY principal while through Managed
PORTFOLIO maintaining some Components
potential for
long-term growth of
capital
MULTI-MANAGED INCOME capital asset allocation
PORTFOLIO preservation through Managed
Components
ASSET ALLOCATION: capital investment
DIVERSIFIED GROWTH appreciation primarily through a
PORTFOLIO 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
STOCK PORTFOLIO long-term capital investment
appreciation, with primarily in the
a secondary common stocks of a
objective of diversified group
increasing dividend of well-established
income 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 invests to varying degrees, according to its
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 Portfolios. 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 Portfolios.
The following chart shows the allocation of the assets of each Multi-Managed
Seasons Portfolio among the Managed Components.
<TABLE>
<CAPTION>
SUNAMERICA/
PORTFOLIO AGGRESSIVE JANUS/ SUNAMERICA/ WMC/FIXED
--------- GROWTH GROWTH BALANCED INCOME
COMPONENT COMPONENT COMPONENT COMPONENT
-------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
MULTI-MANAGED GROWTH 20% 40% 20% 20%
PORTFOLIO
MULTI-MANAGED MODERATE GROWTH 18% 28% 18% 36%
PORTFOLIO
MULTI-MANAGED INCOME/EQUITY 0% 18% 28% 54%
PORTFOLIO
MULTI-MANAGED INCOME 0% 8% 17% 75%
PORTFOLIO
</TABLE>
Differences in investment returns among the Managed Components may cause the
actual percentages to vary over the course of a calendar quarter from the
targets listed in the chart. Accordingly, the assets of each Multi-Managed
Seasons Portfolio will be reallocated or "rebalanced" among the Managed
Components on at least a quarterly basis to restore the target allocations for
such Portfolio.
4
<PAGE>
A "GROWTH" PHILOSOPHY -- 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 -- 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 COMPANIES are generally those with market capitalizations of over $9.5
billion, although there may be some overlap among capitalization categories.
MEDIUM SIZED COMPANIES are generally those with market capitalizations ranging
from $1.5 billion to $9.5 billion, although there may be some overlap among
capitalization categories.
SMALL COMPANIES are generally those with market capitalizations of $1.5 billion
or less, although there may be some overlap among capitalization categories.
<TABLE>
<CAPTION>
SEASONS SELECT PORTFOLIOS
-------------------------------------------------------------------
PORTFOLIO INVESTMENT GOAL STRATEGY
--------- --------------- --------
<S> <C> <C>
LARGE CAP GROWTH long-term growth of invests primarily
PORTFOLIO capital in equity
securities of large
companies (at least
65% of total
assets) selected
through a growth
strategy
LARGE CAP COMPOSITE long-term growth of invests primarily
PORTFOLIO capital and growth in equity
of dividend income securities of large
companies (at least
65% of total
assets) that offer
the potential for
long-term growth of
capital or
dividends
LARGE CAP VALUE long-term growth of invests primarily
PORTFOLIO capital in equity
securities of large
companies (at least
65% of total
assets) selected
through a value
strategy
MID CAP GROWTH long-term growth of invests primarily
PORTFOLIO capital in equity
securities of
medium sized
companies (at least
65% of total
assets) selected
through a growth
strategy
MID CAP VALUE long-term growth of invests primarily
PORTFOLIO capital in equity
securities of
medium sized
companies (at least
65% of total
assets) selected
through a value
strategy
SMALL CAP PORTFOLIO long-term growth of invests primarily
capital in equity
securities of small
companies (at least
65% of total
assets)
INTERNATIONAL EQUITY long-term growth of invests primarily
PORTFOLIO capital in equity
securities of
issuers in at least
three countries
other than the U.S.
DIVERSIFIED FIXED relatively high invests primarily
INCOME PORTFOLIO current income and in fixed income
secondarily capital securities,
appreciation including U.S. and
foreign government
securities,
mortgage-backed
securities,
investment grade
debt securities,
and high yield/high
risk bonds ("junk
bonds")
CASH MANAGEMENT high current yield invests in a
PORTFOLIO while preserving diversified
capital 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 Manager of a SEASONS FOCUSED PORTFOLIO 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.
ACTIVE TRADING: A strategy used whereby a Portfolio may engage in frequent
trading of securities to achieve its investment goal.
<TABLE>
<CAPTION>
SEASONS FOCUSED PORTFOLIOS
-------------------------------------------------------------------
PORTFOLIO INVESTMENT GOAL STRATEGY
--------- --------------- --------
<S> <C> <C>
FOCUS GROWTH long-term growth of active trading of
PORTFOLIO capital equity securities
of growth companies
without regard to
market
capitalization.
</TABLE>
Each Seasons Select Portfolio except the CASH
MANAGEMENT PORTFOLIO, is managed by several separate
Managers, and we call these Portfolios the
"Multi-Managed Seasons Select Portfolios." Each
Multi-Managed Seasons Select Portfolio offers you
access to at least three different professional
Managers, one of which may be SunAmerica, and each of
which advises a separate portion of the Portfolio. To
balance the risks of an actively managed portfolio,
each Multi-Managed Seasons Select Portfolio includes a
passively-managed index component, currently managed
by Bankers Trust Company, that seeks to replicate a
target index or a subset of an index. The index
component will not sell securities in its portfolio or
buy different securities over the course of a year
other than in conjunction with changes in its index,
even if there are adverse developments concerning a
particular security, company or industry.
The Seasons Focused Portfolios, of which there is currently only one Portfolio,
the FOCUS GROWTH 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. Each Manager actively selects a limited
number of stocks that represent their best ideas. This "Focus" approach to
investing results in a more concentrated portfolio, which will be less
diversified than other Portfolios, and may be subject to greater market risks.
SunAmerica will initially allocate the assets of each Multi-Managed Seasons
Select Portfolio and 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 Seasons Focused Portfolio to determine the extent to which
the portion of assets managed by a Manager differs from that portion managed by
any other Manager of 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 or 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.
6
<PAGE>
Q: WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS?
A: The following section describes the principal risks of each Portfolio, and
the charts beginning on page 16 describe various additional risks.
RISKS OF INVESTING IN 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, INTERNATIONAL EQUITY and
FOCUS GROWTH PORTFOLIOS invest primarily in equity securities. In addition,
the MULTI-MANAGED INCOME/EQUITY and MULTI-MANAGED INCOME PORTFOLIOS invest
significantly in equity securities. As with any equity fund, the value of
your investment in any of these Portfolios may fluctuate in response to
stock market movements. 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, SMALL CAP and FOCUS GROWTH 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. In addition, individual stocks selected for any
of these Portfolios may underperform the market generally.
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. In addition, individual bonds selected for any of these
Portfolios may underperform the market generally.
RISKS OF INVESTING IN JUNK BONDS
Each of the Portfolios except the STOCK, 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 try to engage in a credit analysis
of each junk bond issuer in which a Portfolio invests, junk bonds carry a
substantial risk of default or changes in the issuer's creditworthiness, or
they may already be in default. A junk bond's market price may fluctuate
more than higher-quality securities and may decline significantly. In
addition, it may be more difficult for a Portfolio to dispose of junk bonds
or to determine their value. Junk bonds may contain redemption or call
provisions that, if exercised during a period of declining interest rates,
may force a Portfolio to replace the security with a lower yielding
security. If this occurs, it will result in a decreased return for you.
RISKS OF INVESTING IN MONEY MARKET SECURITIES
While an investment in the CASH MANAGEMENT PORTFOLIO should present the
least market risk of any of the Portfolios since it invests only in
high-quality short-term debt obligations, you should be aware that an
investment in the CASH MANAGEMENT PORTFOLIO is subject to the risks that the
value of its investments may be affected by changes in interest rates. The
CASH MANAGEMENT PORTFOLIO does not seek to maintain a stable net asset value
of $1.00.
7
<PAGE>
RISKS OF INVESTING INTERNATIONALLY
All 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 Portfolio except for the ASSET ALLOCATION: DIVERSIFIED GROWTH, STOCK,
DIVERSIFIED FIXED INCOME, and CASH MANAGEMENT PORTFOLIOS 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 Portfolios by showing changes in the
Portfolios' performance from calendar year to calendar year, and by comparing
each Portfolios' average annual returns 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 Portfolio will perform in the future. Performance information is not
included for Portfolios that have not been in existence for a full calendar
year.
8
<PAGE>
--------------------------------------------------------------------------------
MULTI-MANAGED GROWTH PORTFOLIO
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
(Class A)*
<TABLE>
<S> <C>
1998 31.45%
1999 55.76%
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
31.19% (quarter ended 12/31/99) and the lowest return for a quarter was -6.23%
(quarter ended 9/30/98). For the most recent calendar quarter ended 6/30/00 the
return was -4.89%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) ONE YEAR INCEPTION*****
<S> <C> <C>
-----------------------------------------------------------------------------------------
Multi-Managed Growth Portfolio Class A* 55.76% 39.02%
-----------------------------------------------------------------------------------------
S&P 500-Registered Trademark-** 21.04% 102.56%
-----------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index*** -0.82% 18.36%
-----------------------------------------------------------------------------------------
Blended Benchmark Index**** 14.77% 65.84%
-----------------------------------------------------------------------------------------
</TABLE>
* The returns shown in the bar chart and the table are for Class A shares,
which are offered only to contract holders of the Seasons and Seasons
Select Variable Annuity Contracts. Class B shares, which are offered only
to contract holders of the Seasons Select II Variable Annuity Contract,
would have had substantially similar annual returns as those shown for
Class A shares because the shares are invested in the same portfolio of
securities as the Class A shares. The annual returns of the Class B
shares would differ from those of the Class A shares only to the extent
that Class B shares are subject to service fees, while Class A shares are
not. If these fees were reflected, returns of the Class B shares would be
less than those shown.
** 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.
**** The Blended Benchmark Index consists of 51%
S&P 500-Registered Trademark-, 27% Lehman Brothers Aggregate Index, 20%
Russell 2000 Index, and 2% Treasury Bills. The S&P 500 Index tracks the
performance of 500 stocks representing a sampling of the largest foreign
and domestic stocks traded publicly in the United States. The Lehman
Brothers Aggregate Index provides a broad view of the performance of the
U.S. fixed income market. The Russell 2000 Index comprises the smallest
2000 companies in the Russell 3000 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.
***** Inception date for Class A shares is April 15, 1997.
9
<PAGE>
--------------------------------------------------------------------------------
MULTI-MANAGED MODERATE GROWTH PORTFOLIO
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
(Class A)*
<TABLE>
<S> <C>
1998 25.07%
1999 41.32%
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
24.57% (quarter ended 12/31/99) and the lowest return for a quarter was -4.20%
(quarter ended 9/30/98). For the most recent calendar quarter ended 6/30/00 the
return was -3.17%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) ONE YEAR INCEPTION*****
<S> <C> <C>
-----------------------------------------------------------------------------------------
Multi-Managed Moderate Growth Portfolio Class A* 41.32% 30.90%
-----------------------------------------------------------------------------------------
S&P 500-Registered Trademark-** 21.04% 102.56%
-----------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index*** -0.82% 18.36%
-----------------------------------------------------------------------------------------
Blended Benchmark Index**** 11.38% 54.01%
-----------------------------------------------------------------------------------------
</TABLE>
* The returns shown in the bar chart and the table are for Class A shares,
which are offered only to contract holders of the Seasons and Seasons
Select Variable Annuity Contracts. Class B shares, which are offered only
to contract holders of the Seasons Select II Variable Annuity Contract,
would have had substantially similar annual returns as those shown for
Class A shares because the shares are invested in the same portfolio of
securities as the Class A shares. The annual returns of the Class B
shares would differ from those of the Class A shares only to the extent
that Class B shares are subject to service fees, while Class A shares are
not. If these fees were reflected, returns of the Class B shares would be
less than those shown.
** 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.
**** The Blended Benchmark Index consists of 37.9% S&P
500-Registered Trademark-, 42.3% Lehman Brothers Aggregate Index, 18.0%
Russell 2000 Index, and 1.8% Treasury Bills. The S&P 500 Index tracks the
performance of 500 stocks representing a sampling of the largest foreign
and domestic stocks traded publicly in the United States. The Lehman
Brothers Aggregate Index provides a broad view of the performance of the
U.S. fixed income market. The Russell 2000 Index comprises the smallest
2000 companies in the Russell 3000 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.
***** Inception date for Class A shares is April 15, 1997.
10
<PAGE>
--------------------------------------------------------------------------------
MULTI-MANAGED INCOME/EQUITY PORTFOLIO
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
(Class A)*
<TABLE>
<S> <C>
1998 19.13%
1999 17.31%
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
10.80% (quarter ended 12/31/99) and the lowest return for a quarter was -2.52%
(quarter ended 6/30/00). For the most recent calendar quarter ended 6/30/00 the
return was -2.52%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) ONE YEAR INCEPTION*****
<S> <C> <C>
-----------------------------------------------------------------------------------------
Multi-Managed Income/Equity Portfolio Class A* 17.31% 18.76%
-----------------------------------------------------------------------------------------
S&P 500-Registered Trademark-** 21.04% 102.56%
-----------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index*** -0.82% 18.36%
-----------------------------------------------------------------------------------------
Blended Benchmark Index**** 6.37% 42.85%
-----------------------------------------------------------------------------------------
</TABLE>
* The returns shown in the bar chart and the table are for Class A shares,
which are offered only to contract holders of the Seasons and Seasons
Select Variable Annuity Contracts. Class B shares, which are offered only
to contract holders of the Seasons Select II Variable Annuity Contract,
would have had substantially similar annual returns as those shown for
Class A shares because the shares are invested in the same portfolio of
securities as the Class A shares. The annual returns of the Class B
shares would differ from those of the Class A shares only to the extent
that Class B shares are subject to service fees, while Class A shares are
not. If these fees were reflected, returns of the Class B shares would be
less than those shown.
** 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.
**** The Blended Benchmark Index consists of 33.4%
S&P 500-Registered Trademark-, 63.8% Lehman Brothers Aggregate Index, and
2.8% Treasury Bills. The S&P 500 Index tracks the performance of 500
stocks representing a sampling of the largest foreign and domestic stocks
traded publicly in the United States. The Lehman Brothers Aggregate Index
provides a broad view of the performance of the U.S. fixed income market.
Treasury Bills are short-term securities with maturities of one year or
less issued by the U.S. government.
***** Inception date for Class A shares is April 15, 1997.
11
<PAGE>
--------------------------------------------------------------------------------
MULTI-MANAGED INCOME PORTFOLIO
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
(Class A)*
<TABLE>
<S> <C>
1998 13.58%
1999 6.99%
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
5.31% (quarter ended 12/31/99) and the lowest return for a quarter was -0.49%
(quarter ended 6/30/00). For the most recent calendar quarter ended 6/30/00 the
return was -0.49%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) ONE YEAR INCEPTION*****
<S> <C> <C>
-----------------------------------------------------------------------------------------
Multi-Managed Income Portfolio Class A* 6.99% 12.16%
-----------------------------------------------------------------------------------------
S&P 500-Registered Trademark-** 21.04% 102.56%
-----------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index*** -0.82% 18.36%
-----------------------------------------------------------------------------------------
Blended Benchmark Index**** 2.90% 30.65%
-----------------------------------------------------------------------------------------
</TABLE>
* The returns shown in the bar chart and the table are for Class A shares,
which are offered only to contract holders of the Seasons and Seasons
Select Variable Annuity Contracts. Class B shares, which are offered only
to contract holders of the Seasons Select II Variable Annuity Contract,
would have had substantially similar annual returns as those shown for
Class A shares because the shares are invested in the same portfolio of
securities as the Class A shares. The annual returns of the Class B
shares would differ from those of the Class A shares only to the extent
that Class B shares are subject to service fees, while Class A shares are
not. If these fees were reflected, returns of the Class B shares would be
less than those shown.
** 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.
**** The Blended Benchmark Index consists of 17.35%
S&P 500-Registered Trademark-, 80.95% Lehman Brothers Aggregate Index,
and 1.70% Treasury Bills. The S&P 500 Index tracks the performance of 500
stocks representing a sampling of the largest foreign and domestic stocks
traded publicly in the United States. The Lehman Brothers Aggregate Index
provides a broad view of the performance of the U.S. fixed income market.
Treasury Bills are short-term securities with maturities of one year or
less issued by the U.S. government.
***** Inception date for Class A shares is April 15, 1997.
12
<PAGE>
--------------------------------------------------------------------------------
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
(Class A)*
<TABLE>
<S> <C>
1998 13.43%
1999 18.79%
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
15.54% (quarter ended 12/31/98) and the lowest return for a quarter was -9.81%
(quarter ended 9/30/98). For the most recent calendar quarter ended 6/30/00 the
return was -2.94%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) ONE YEAR INCEPTION*****
<S> <C> <C>
Asset Allocation: Diversified Growth Portfolio Class A* 18.79% 16.52%
-----------------------------------------------------------------------------------------
S&P 500-Registered Trademark-** 21.04% 102.56%
-----------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index*** -0.82% 18.36%
-----------------------------------------------------------------------------------------
Blended Benchmark Index**** 17.72% 75.95%
-----------------------------------------------------------------------------------------
</TABLE>
* The returns shown in the bar chart and the table are for Class A shares,
which are offered only to contract holders of the Seasons and Seasons
Select Variable Annuity Contracts. Class B shares, which are offered only
to contract holders of the Seasons Select II Variable Annuity Contract,
would have had substantially similar annual returns as those shown for
Class A shares because the shares are invested in the same portfolio of
securities as the Class A shares. The annual returns of the Class B
shares would differ from those of the Class A shares only to the extent
that Class B shares are subject to service fees, while Class A shares are
not. If these fees were reflected, returns of the Class B shares would be
less than those shown.
** 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.
**** The Blended Benchmark Index consists of 60%
S&P 500-Registered Trademark-, 20% Lehman Brothers Aggregate Index, and
20% Morgan Stanley Capital International Europe, Australia and Far East
(MSCI EAFE) Index. The S&P 500 Index tracks the preformance of 500 stocks
representing a sampling of the largest foreign and domestic stocks traded
publicly in the United States. The Lehman Brothers Aggregate Index
provides a broad view of the performance of the U.S. fixed income market.
The MSCI EAFE Index represents the foreign stocks of 19 countries in
Europe, Australia and the Far East.
***** Inception date for Class A shares is April 15, 1997.
13
<PAGE>
--------------------------------------------------------------------------------
STOCK PORTFOLIO
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
(Class A)*
<TABLE>
<S> <C>
1998 27.24%
1999 21.51%
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
22.80% (quarter ended 12/31/98) and the lowest return for a quarter was -11.25%
(quarter ended 9/30/98). For the most recent calendar quarter ended 6/30/00 the
return was -0.61%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST RETURN SINCE
(AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) ONE YEAR INCEPTION***
<S> <C> <C>
---------------------------------------------------------------------------------------
Stock Portfolio Class A* 21.51% 28.93%
---------------------------------------------------------------------------------------
S&P 500-Registered Trademark-* 21.04% 102.56%
---------------------------------------------------------------------------------------
</TABLE>
* The returns shown in the bar chart and the table are for Class A shares,
which are offered only to contract holders of the Seasons and Seasons
Select Variable Annuity Contracts. Class B shares, which are offered only
to contract holders of the Seasons Select II Variable Annuity Contract,
would have had substantially similar annual returns as those shown for
Class A shares because the shares are invested in the same portfolio of
securities as the Class A shares. The annual returns of the Class B shares
would differ from those of the Class A shares only to the extent that
Class B shares are subject to service fees, while Class A shares are not.
If these fees were reflected, returns of the Class B shares would be less
than those shown.
** The Standard & Poor's Composite Index of 500 Stocks (S&P 500 Index) tracks
the performance of 500 stocks representing a sampling of the largest
foreign and domestic stocks traded publicly in the United States.
*** Inception date for Class A shares is April 15, 1997.
14
<PAGE>
--------------------------------------------------------------------------------
MORE INFORMATION ABOUT THE PORTFOLIOS
-------------------------------------------------------------------------------
INVESTMENT STRATEGIES
Each Portfolio has its own investment goal and principal strategy for pursuing
it as described in the charts beginning on page 3. The charts below summarize
information about each Portfolio's and Managed Component's investments. We have
included a glossary to define the investment and risk terminology used in the
charts and throughout this Prospectus and to provide information about the
target indices or subsets thereof which the passively managed components of the
Multi-Managed Seasons Select Portfolios seek to replicate. Unless otherwise
indicated, investment restrictions, including percentage limitations, apply at
the time of purchase. You should consider your ability to assume the risks
involved before investing in a Portfolio or Managed Component through the
Seasons, Seasons Select or Seasons Select II Variable Annuity Contracts.
The Seasons, Seasons Select and Seasons Select II 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 and the
allocation of assets among the Portfolios will vary depending on the objective
of the Strategy.
ADDITIONAL INFORMATION ABOUT THE 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 previously indicated in the chart on page 4. If
you invest in one of the Multi-Managed Seasons Portfolios, it's important for
you to understand how the information in the charts 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%. Also, if you invest in a
Strategy that invests heavily in the MULTI-MANAGED INCOME PORTFOLIO you should
be aware that this Portfolio invests three quarters of its assets in the
WMC/FIXED INCOME component. So, 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.
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEASONS PORTFOLIOS
SUNAMERICA/ SUNAMERICA/
AGGRESSIVE GROWTH JANUS/GROWTH BALANCED
COMPONENT COMPONENT COMPONENT
What are the - Equity securities, - Equity securities - Equity securities:
Portfolio's/Managed including those of selected for their -large-cap stocks
Component's principal lesser known or new growth potential: -mid-cap stocks
investments? growth companies or -large-cap stocks - Long term bonds and
industries, such as -mid-cap stocks other debt securities
technology, -small-cap stocks - 70%/30% neutral
telecommunications, equity/debt weighting
media for Multi-Managed
and healthcare: Growth and Moderate
-mid-cap stocks Growth Portfolios
-small-cap stocks (actual weighting may
differ)
- 50%/50% neutral
equity/debt weighting
for Multi-Managed
Income/Equity and
Income Portfolios
(actual weighting may
differ)
In what other types - Large-cap stocks - Junk bonds (up to - Small-cap stocks (up
of investments may - Short-term 35%) to 20%)
the Portfolio/ investments - Short-term - Short-term
Managed Component (up to 25%) investments investments
significantly invest? - Illiquid securities (up to 25%) (up to 25%)
(up to 15%) - Illiquid securities - Foreign securities
- Securities lending (up to 15%) (up to 25%)
(up to 33 1/3%) - Securities lending - ADRs/EDRs/GDRs
- Options (up to 33 1/3%) - Emerging markets
- PFICs
- Illiquid securities
(up to 15%)
- Securities lending
(up to 33 1/3%)
What other types of - Investment grade - Investment grade - Investment grade
investments may the fixed income fixed fixed income
Portfolio/Managed securities income securities securities
Component use as part - U.S. government - U.S. government - U.S. government
of efficient securities securities securities
portfolio management - Asset-backed and - Asset-backed and - Asset-backed and
or to enhance return? mortgage- backed mortgage- backed mortgage- backed
securities securities securities
- Foreign securities - Foreign securities - Options and futures
- ADRs/EDRs/GDRs - ADRs/EDRs/GDRs - Special situations
- PFICs - Currency transactions (up to 25%)
- Options and futures - Currency baskets - Currency transactions
- Special situations - Emerging markets - Currency baskets
(up to 25%) - PFICs
- Options and futures
- Special situations
(up to 25%)
What risks normally - Market volatility - Market volatility - Market volatility
affect the Portfolio/ - Securities selection - Securities selection - Securities selection
Managed Component? - Growth stocks - Growth stocks - Interest rate
- Small and medium - Junk bonds fluctuations
sized companies - Small and medium - Small and medium
- Non-diversified sized companies sized companies
status - Non-diversified - Non-diversified
- Foreign exposure status status
- Emerging markets - Foreign exposure - Foreign exposure
- Illiquidity - Emerging markets - Emerging markets
- Prepayment - Credit quality - Illiquidity
- Derivatives - Illiquidity - Prepayment
- Hedging - Prepayment - Derivatives
- Active trading - Derivatives - Hedging
- Hedging
- Active trading
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEASONS PORTFOLIOS
WMC/FIXED ASSET ALLOCATION:
INCOME DIVERSIFIED
COMPONENT GROWTH PORTFOLIO STOCK PORTFOLIO
What are the - U.S. and foreign - Strategic allocation - Common stocks of well
Portfolio's/Managed fixed income of approximately 80% established growth
Component's principal securities of varying (with a range of companies (at least
investments? maturities and 65-95%) of assets to 65% of total assets)
risk/return equity securities:
characteristics (at -large-cap stocks
least 80% investment -mid-cap stocks
grade securities and -small-cap stocks
at least 85% U.S. - Strategic allocation
dollar denominated of approximately 20%
securities) (with a range of
5-35%) of assets to
fixed income
securities
In what other types - Junk bonds (up to - Junk bonds (up to - Short-term
of investments may 20%) 20%) investments
the Portfolio/ - Short-term - Short-term (up to 25%)
Managed Component investments investments - Foreign securities
significantly invest? (up to 25%) (up to 25%) (up to 30%)
- Foreign securities - Foreign securities - Illiquid securities
(up to 15% denominated (up to 60%) (up to 15%)
in foreign currencies; - Illiquid securities - Securities lending
up to 100% denominated (up to 15%) (up to 33 1/3%)
in U.S. dollars) - Securities lending
- Illiquid securities (up to 33 1/3%)
(up to 15%)
- Securities lending
(up to 33 1/3%)
What other types of - Investment grade - Investment grade - Mid-cap stocks
investments may the fixed income fixed - Investment grade
Portfolio/Managed securities income securities fixed income
Component use as part - U.S. government - U.S. government securities
of efficient securities securities - U.S. government
portfolio management - Asset-backed and - Asset-backed and securities
or to enhance return? mortgage- backed mortgage- backed - Asset-backed and
securities securities mortgage- backed
- Currency transactions - ADRs/EDRs/GDRs securities
- Currency baskets - Currency transactions - ADRs/EDRs/ GDRs
- PFICs - Currency baskets - Currency transactions
- Options and futures - Emerging markets - Currency baskets
- Special situations - PFICs - Emerging markets
(up to 25%) - Options and futures - PFICs
- Special situations - Options and futures
(up to 25%) - Special situations
(up to 25%)
- Convertible
securities and
warrants
What risks normally - Market volatility - Market volatility - Market volatility
affect the Portfolio/ - Securities selection - Securities selection - Securities selection
Managed Component? - Interest rate - Growth stocks - Growth stocks
fluctuations - Foreign exposure - Foreign exposure
- Non-diversified - Small and medium - Medium-sized
status sized companies companies
- Foreign exposure - Emerging markets - Emerging markets
- Emerging markets - Credit quality - Illiquidity
- Credit quality - Junk bonds - Prepayment
- Junk bonds - Illiquidity - Derivatives
- Illiquidity - Prepayment - Hedging
- Prepayment - Derivatives
- Derivatives - Hedging
- Hedging
- Active trading
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEASONS SELECT PORTFOLIOS
LARGE CAP LARGE CAP LARGE CAP
GROWTH PORTFOLIO COMPOSITE PORTFOLIO VALUE PORTFOLIO
What are the - Equity securities of - Equity securities of - Equity securities of
Portfolio's principal large companies (at large companies (at large companies (at
investments? least 65% of total least 65% of total least 65% of total
assets) selected assets) that offer the assets) selected
through a growth potential for through a value
strategy long-term growth of strategy
capital or dividends
What index or subset - S&P - S&P - S&P
of an index will the 500-Registered Trademark-/BARRA 500-Registered Trademark- 500-Registered Trademark-/BARRA
Portfolio's index Growth Index Composite Stock Price Value Index
component seek to Index
replicate?
In what other types - Mid-cap stocks - Mid-cap stocks - Mid-cap stocks
of investments may - Junk bonds (up to - Junk bonds (up to - Short-term
the Portfolio 35%) 15%) investments
significantly invest? - Short-term - Short-term (up to 25%)
investments investments - Foreign securities
(up to 25%) (up to 25%) (up to 30%)
- Foreign securities - Foreign securities - ADRs/EDRs/GDRs
- ADRs/EDRs/GDRs (up to 30%) - Illiquid securities
- PFICs - ADRs/EDRs/GDRs (up to 15%)
- Illiquid securities - PFICs - Securities lending
(up to 15%) - Illiquid securities (up to 33 1/3%)
- Securities lending (up to 15%) - Investment grade
(up to 33 1/3%) - Securities lending fixed income
(up to 33 1/3%) securities
- U.S. government
securities
- Asset-backed and
mortgage-backed
securities
What other types of - Small-cap stocks - Small-cap stocks - Small-cap stocks
investments may the - Investment grade - Investment grade - Junk bonds (up to
Portfolio use as part fixed income fixed 10%)
of efficient securities income securities - REITs
portfolio management - U.S. government - U.S. government - Currency transactions
or to enhance return? securities securities - Currency baskets
- Asset-backed and - Asset-backed and - Options and futures
mortgage- backed mortgage- backed - Hybrid instruments
securities securities (up to 10%)
- REITs - REITs - Interest rate swaps,
- Currency transactions - Currency transactions mortgage swaps, caps,
- Currency baskets - Currency baskets floors and collars
- Options and futures - Options and futures - Special situations
- Hybrid instruments - Hybrid instruments (up to 25%)
(up to 10%) (up to 10%) - Convertible
- Interest rate swaps, - Interest rate swaps, securities and
mortgage swaps, caps, mortgage swaps, caps, warrants
floors and collars floors and collars
- Special situations - Special situations
(up to 25%) (up to 25%)
- Convertible
securities and
warrants
What risks normally - Market volatility - Market volatility - Market volatility
affect the Portfolio? - Securities selection - Securities selection - Securities selection
- Growth stocks - Growth stocks - Value investing
- Non-diversified - Non-diversified - Non-diversified
status status status
- Foreign exposure - Foreign exposure - Foreign exposure
- Interest rate - Interest rate - Interest rate
fluctuations fluctuations fluctuations
- Credit quality - Credit quality - Credit quality
- Emerging markets - Emerging markets - Emerging markets
- Illiquidity - Illiquidity - Illiquidity
- Prepayment - Prepayment - Prepayment
- Derivatives - Derivatives - Derivatives
- Hedging - Hedging - Hedging
- Small and medium - Small and medium - Small and medium
sized companies sized companies sized companies
- Active trading - Active trading - Active trading
- Indexing - Indexing - Indexing
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEASONS SELECT PORTFOLIOS
MID CAP GROWTH MID CAP VALUE PORTFOLIO SMALL CAP PORTFOLIO
What are the - Equity securities of - Equity securities of - Equity securities of
Portfolio's principal medium- sized medium- sized small companies (at
investments? companies (at least companies (at least least 65% of total
65% of total assets) 65% of total assets) assets)
selected through a selected through a
growth strategy value strategy
What index or subset - Russell MidCap-TM- - Russell MidCap-TM- - Russell
of an index will the Growth Index Value Index 2000-Registered Trademark-
Portfolio's index Index
component seek to
replicate?
In what other types - Large-cap stocks - Large-cap stocks - Active trading
of investments may - Small-cap stocks - Small-cap stocks - Junk bonds (up to
the Portfolio - Short-term - Junk bonds (up to 20%)
significantly invest? investments 20%) - Short-term
(up to 25%) - Short-term investments
- Foreign securities investments (up to 25%)
(up to 30%) (up to 25%) - Foreign securities
- ADRs/EDRs/GDRs - Foreign securities (up to 30%)
- PFICs (up to 30%) - ADRs/EDRs/GDRs
- Illiquid securities - ADRs/EDRs/GDRs - PFICs
(up to 15%) - PFICs - Illiquid securities
- Securities lending - Illiquid securities (up to 15%)
(up to 33 1/3%) (up to 15%) - Securities lending
- Securities lending (up to 33 1/3%)
(up to 33 1/3%) - Mid-cap stocks
What other types of - Investment grade - Investment grade - Large-cap stocks
investments may the fixed income fixed income - Mid-cap stocks
Portfolio use as part securities securities - Investment grade
of efficient - U.S. government - U.S. government fixed income
portfolio management securities securities securities
or to enhance return? - Asset-backed and - Asset-backed and - U.S. government
mortgage- backed mortgage- backed securities
securities securities - Asset-backed and
- REITs - REITs mortgage- backed
- Currency transactions - Currency transactions securities
- Currency baskets - Currency baskets - REITs
- Emerging markets - Emerging markets - Emerging markets
- Options and futures - Options and futures - Options and futures
- Hybrid instruments - Hybrid instruments - Hybrid instruments
(up to 10%) (up to 10%) (up to 10%)
- Interest rate swaps, - Interest rate swaps, - Interest rate swaps,
mortgage swaps, caps, mortgage swaps, caps, mortgage swaps, caps,
floors and collars floors and collars floors and collars
- Special situations - Special situations - Special situations
(up to 25%) (up to 25%) (up to 25%)
- Convertible
securities and
warrants
What risks normally - Market volatility - Market volatility - Market volatility
affect the Portfolio? - Securities selection - Securities selection - Securities selection
- Growth stocks - Value investing - Growth stocks
- Non-diversified - Non-diversified - Non-diversified
status status status
- Foreign exposure - Foreign exposure - Foreign exposure
- Interest rate - Interest rate - Interest rate
fluctuations fluctuations fluctuations
- Credit quality - Credit quality - Credit quality
- Illiquidity - Illiquidity - Foreign exposure
- Prepayment - Prepayment - Illiquidity
- Derivatives - Derivatives - Prepayment
- Hedging - Hedging - Derivatives
- Small and medium - Small and medium - Hedging
sized companies sized companies - Small and medium
- Active trading - Active trading sized companies
- Indexing - Indexing - Active trading
- Indexing
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEASONS SELECT PORTFOLIOS
INTERNATIONAL EQUITY DIVERSIFIED FIXED CASH MANAGEMENT
PORTFOLIO INCOME PORTFOLIO PORTFOLIO
What are the - Equity securities of - Fixed income - A diversified
Portfolio's principal issuers in at least securities, including selection of
investments? three countries other U.S. and foreign short-term money
than the U.S. government securities market instruments
- Mortgage-backed
securities
- Investment grade debt
securities
- Junk bonds (up to
20%)
What index or subset - MSCI EAFE Index - Lehman Brothers - N/A
of an index will the Government/Corp. Bond
Portfolio's index Index
component seek to (Government portion
replicate? only)
In what other types - Large-cap stocks - Asset-backed and - Investment grade
of investments may - Mid-cap stocks mortgage- backed fixed income
the Portfolio - Small-cap stocks securities securities
significantly invest? - Junk bonds (up to - Foreign securities - U.S. government
35%) (up to 30%) securities
- Short-term - ADRs/EDRs/GDRs - Illiquid securities
investments - PFICs (up to 10%)
(up to 25%) - Illiquid securities
- ADRs/EDRs/GDRs (up to 15%)
- PFICs - Securities lending
- Emerging markets (up to 33%)
- Illiquid securities
(up to 15%)
- Securities lending
(up to 33%)
What other types of - Investment grade - Currency transactions - Asset-backed and
investments may the fixed income - Currency baskets mortgage- backed
Portfolio use as part securities - Emerging markets securities
of efficient - U.S. government - Options and futures
portfolio management securities - Hybrid instruments
or to enhance return? - Asset-backed and (up to 10%)
mortgage- backed - Interest rate swaps,
securities mortgage swaps, caps,
- REITs floors and collars
- Currency transactions - Special situations
- Currency baskets (up to 25%)
- Options and futures
- Hybrid instruments
(up to 10%)
- Interest rate swaps,
mortgage swaps, caps,
floors and collars
- Special situations
(up to 25%)
What risks normally - Market volatility - Market volatility - Securities selection
affect the Portfolio? - Securities selection - Securities selection - Interest rate
- Foreign exposure - Interest rate fluctuations
- Emerging markets fluctuations
- Non-diversified - Credit quality
status - Foreign exposure
- Interest rate - Emerging markets
fluctuations - Illiquidity
- Credit quality - Prepayment
- Illiquidity - Derivatives
- Prepayment - Hedging
- Derivatives - Indexing
- Hedging - Active trading
- Indexing
- Active trading
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SEASONS FOCUSED PORTFOLIOS
FOCUS GROWTH PORTFOLIO
What are the Portfolio's principal - Equity securities:
investments? -large-cap stocks
-mid-cap stocks
-small-cap stocks
-common stocks
-convertible securities
-warrants
-rights
- Preferred stocks
In what other types of investments - Foreign securities
may the Portfolio significantly
invest?
What other types of investments may - Short-term investments
the Portfolio use as part of - Defensive investments
efficient portfolio management or to - Options and futures
enhance return? - Special situations (up to 25%)
- Currency transactions
- Fixed-income securities
- Illiquid securities (up to 15%)
- Active trading
What risks normally affect the - Non-diversified status
Portfolio? - Market volatility
- Securities selection
- Growth stocks
- Small and medium sized companies
- Foreign exposure
- Derivatives
- Hedging
- Interest rate fluctuations
</TABLE>
21
<PAGE>
--------------------------------------------------------------------------------
GLOSSARY
--------------------------------------------------------------------------------
INVESTMENT TERMINOLOGY
CURRENCY TRANSACTIONS include the purchase and sale of currencies to facilitate
the settlement of securities transactions and forward currency contracts, which
are used to hedge against changes in currency exchange rates.
A CURRENCY BASKET consists of specified amounts of currencies of certain foreign
countries.
DEFENSIVE INVESTMENTS include high quality fixed income securities, repurchase
agreements and other 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.
EQUITY SECURITIES, such as COMMON STOCKS, represent shares of equity ownership
in a corporation. Common stocks may or may not receive dividend payments.
Certain securities have common stock characteristics, including certain
convertible securities such as WARRANTS and RIGHTS, and may be classified as
equity securities. Investments in equity securities and securities with equity
characteristics include:
- LARGE-CAP STOCKS are common stocks of large companies that generally have
market capitalizations of over $9.5 billion, although there may be some
overlap among capitalization categories. WMC will consider stock of
companies with market capitalizations equaling or exceeding the median
market capitalization of the S&P 500-Registered Trademark- to be
large-cap stocks. Market capitalization categories may change based on
market conditions or changes in market capitalization classifications as
defined by agencies such as S&P, Russell, Morningstar, Inc. or Lipper.
- MID-CAP STOCKS are common stocks of medium sized companies that generally
have market capitalizations ranging from $1.5 billion to $9.5 billion,
although there may be some overlap among capitalization categories.
Market capitalization categories may change based on market conditions or
changes in market capitalization classifications as defined by agencies
such as S&P, Russell, Morningstar, Inc. or Lipper.
- SMALL-CAP STOCKS are common stocks of small companies that generally have
market capitalizations of $1.5 billion or less, although there may be
some overlap among capitalization categories. Market capitalization
categories may change based on market conditions or changes in market
capitalization classifications as defined by agencies such as S&P,
Russell, Morningstar, Inc. or Lipper.
- CONVERTIBLE SECURITIES are securities (such as bonds or preferred stocks)
that may be converted into common stock of the same or a different
company.
- WARRANTS are rights to buy common stock of a company at a specified price
during the life of the warrant.
- RIGHTS represent a preemptive right of stockholders to purchase
additional shares of a stock at the time of a new issuance before the
stock is offered to the general public.
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<PAGE>
FIXED INCOME SECURITIES are broadly classified as securities that provide for
periodic payment, typically interest or dividend payments, to the holder of the
security at a stated rate. Most fixed income securities, such as bonds,
represent indebtedness of the issuer and provide for repayment of principal at a
stated time in the future. Others do not provide for repayment of a principal
amount. The issuer of a SENIOR FIXED INCOME SECURITY is obligated to make
payments on this security ahead of other payments to security holders.
Investments in fixed income securities include:
- 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.
- An INVESTMENT GRADE FIXED INCOME SECURITY is rated in one of the top four
rating categories by a debt rating agency (or is considered of comparable
quality by the Adviser or Subadviser). The two best-known debt rating
agencies are Standard & Poor's Rating Services, a Division of the
McGraw-Hill Companies, Inc. and Moody's Investors Service, Inc.
INVESTMENT GRADE refers to any security rated "BBB" or above by Standard
& Poor's or "Baa" or above by Moody's or determined by the Manager to be
of comparable quality.
- A JUNK BOND is a high yield, high risk bond that does not meet the credit
quality standards of an investment grade security.
- PASS-THROUGH SECURITIES involve various debt obligations that are backed
by a pool of mortgages or other assets. Principal and interest payments
made on the underlying asset pools are typically passed through to
investors. Types of pass-through securities include MORTGAGE-BACKED
SECURITIES, COLLATERALIZED MORTGAGE OBLIGATIONS, COMMERCIAL
MORTGAGE-BACKED SECURITIES, and ASSET-BACKED SECURITIES.
- PREFERRED STOCKS receive dividends at a specified rate and have
preference over common stock in the payment of dividends and the
liquidation of assets.
FOREIGN SECURITIES are issued by companies located outside of the United States,
including emerging markets. Foreign securities may include foreign corporate and
government bonds, foreign equity securities, foreign investment companies,
passive foreign investment companies (PFICs), American Depositary Receipts
(ADRs) or other similar securities that represent interests in foreign equity
securities, such as European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs). An EMERGING MARKET country is generally one with a low or
middle income or 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 of
emerging market countries may vary by Adviser or Subadviser.
HYBRID INSTRUMENTS, such as INDEXED (I.E., Standard and Poor's Depositary
Receipts and World Equity Benchmark Shares) 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
23
<PAGE>
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.
ILLIQUID/RESTRICTED 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 trading market.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CAPS, FLOORS AND COLLARS. Interest rate
swaps involve the exchange by a Portfolio with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed-rate
payments for floating rate payments. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payment 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 the 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.
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.
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.
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.
SHORT-TERM INVESTMENTS 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.
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.
24
<PAGE>
ABOUT THE INDICES
As shown on the charts, beginning on page 15, 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, including:
- 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.
- 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.
- 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.
- LEHMAN BROTHERS 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.
25
<PAGE>
RISK TERMINOLOGY
ACTIVE TRADING: A strategy used whereby the Portfolio may engage in frequent
trading of portfolio securities to achieve its investment goal. 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. 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. During periods of increased market volatility, active trading
may be more pronounced. In the "Financial Highlights" section we provide each
Portfolio's portfolio turnover rate for each fiscal year since inception.
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.
CURRENCY VOLATILITY: The value of a Portfolio's foreign investments may
fluctuate due to changes in currency rates. A decline in the value of foreign
currencies relative to the U.S. dollar generally can be expected to depress the
value of the Portfolio's non-U.S. dollar denominated securities.
DERIVATIVES: A derivative is any financial instrument whose value is based on,
and determined by, another security, index or benchmark (E.G., stock options,
futures, caps, floors, etc.). In recent years, derivative securities have become
increasingly important in the field of finance. Futures and options are now
actively traded on many different exchanges. Forward contracts, swaps, and many
different types of options are regularly traded outside of exchanges by
financial institutions in what are termed "over the counter" markets. Other more
specialized derivative securities often form part of a bond or stock issue. To
the extent a contract is used to hedge another position in the portfolio, the
Portfolio will be exposed the risks associated with hedging as describe in this
glossary. 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.
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 an 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.
GROWTH STOCKS: Growth stocks can be volatile for several reasons. Since the
issuers usually reinvest a high portion of earnings in their own business,
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.
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<PAGE>
HEDGING: Hedging is a strategy in which a Portfolio uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio of
securities. While hedging strategies can be very useful and inexpensive ways of
reducing risk, they are sometimes ineffective due to unexpected changes in the
market. 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.
ILLIQUIDITY: There may not be a market for certain securities making it
difficult or impossible to sell at the time and the price that the seller would
like.
INDEXING: The passively-managed index portion of each Multi-Managed Seasons
Select Portfolio will not sell securities in its portfolio and buy different
securities 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
security, company or industry. There can be no assurance that the strategy will
be successful.
INTEREST RATE FLUCTUATIONS: The volatility of fixed income securities is due
principally to changes in interest rates. The market value of bonds and other
fixed income securities usually tends to vary inversely with the level of
interest rates. As interest rates rise the value of such securities typically
falls, and as interest rates fall, the value of such securities typically rise.
Longer-term and lower coupon bonds tend to be more sensitive to changes in
interest rates.
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 in a
Portfolio's portfolio.
NON-DIVERSIFIED STATUS: Portfolios registered as "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 securities. A non-diversified investment company's risk
may increase because the effect of each security on the Portfolio's performance
is greater.
PREPAYMENT: Prepayment risk is the possibility that the principal of the loans
underlying mortgage-backed or other pass-through securities may be prepaid at
any time. 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.
SECURITIES SELECTION: A strategy used by a Portfolio, or securities selected by
its portfolio manager, may fail to produce the intended return.
SMALL AND MEDIUM SIZED COMPANIES: Companies with smaller market capitalizations
(particularly under $1.5 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 also usually
more volatile and entail greater risks than securities of large companies.
VALUE INVESTING: When investing in securities which are believed to be
undervalued in the market, there is a risk that the market may not recognize a
security's intrinsic value for a long period of time, or that a stock judged to
be undervalued may actually be appropriately priced.
27
<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, Brazos Mutual Funds,
SunAmerica Strategic Investment Series, Inc., SunAmerica Style Select
Series, Inc., SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money
Market Funds, Inc. and SunAmerica Series Trust.
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............................ 0.89%
Multi-Managed Moderate Growth Portfolio................... 0.85%
Multi-Managed Income/Equity Portfolio..................... 0.81%
Multi-Managed Income Portfolio............................ 0.77%
Asset Allocation: Diversified Growth Portfolio............ 0.85%
Stock Portfolio........................................... 0.85%
</TABLE>
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<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................................ 0.80%
Large Cap Composite Portfolio............................. 0.80%
Large Cap Value Portfolio................................. 0.80%
Mid Cap Growth Portfolio.................................. 0.85%
Mid Cap Value Portfolio................................... 0.85%
Small Cap Portfolio....................................... 0.85%
International Equity Portfolio............................ 1.00%
Diversified Fixed Income Portfolio........................ 0.70%
Cash Management Portfolio................................. 0.55%
</TABLE>
SunAmerica's fee with respect to the FOCUS GROWTH PORTFOLIO as a percentage of
average daily net assets is 1.00%.
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.
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<PAGE>
INFORMATION ABOUT THE SUBADVISERS
BANKERS TRUST COMPANY. BANKERS TRUST has principal offices at 130 Liberty
Street. Bankers Trust is a large banking institution with substantial domestic
operations. Bankers Trust is an indirect wholly-owned subsidiary of Deutsche
Bank AG ("Deutsche Bank"). Deutsche Bank is a major global banking institution
that is engaged in a wide range of financial services, including investment
management, mutual funds, retail and commercial banking, investment banking and
insurance.
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.
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. 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.
JENNISON ASSOCIATES LLC. JENNISON is a Delaware limited liability company
located at 466 Lexington Avenue, New York, NY 10017. Jennison manages accounts
for some of the nation's largest pools of assets, including many Fortune 500
companies' retirement assets, as well as endowments and foundations.
LORD, ABBETT & CO. LORD ABBETT, located at 90 Hudson Street, Jersey City, NJ
07302, has been an investment manager for over 70 years. Lord Abbett provides
similar services to over 30 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 Abbett's mutual
funds with respect to international equity investments.
MARSICO CAPITAL MANAGEMENT, LLC. MARSICO is a Colorado limited liability
company located at 1200 17th Street, Suite 1300, Denver, CO 80202. Marsico
provides investment management services to various mutual funds and private
accounts.
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.
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.
30
<PAGE>
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.
PORTFOLIO MANAGEMENT
The management of each Portfolio and Managed Component is summarized in the
following tables.
<TABLE>
<CAPTION>
<S> <C>
SEASONS PORTFOLIOS
PORTFOLIO MANAGEMENT ALLOCATED AMONG
THE FOLLOWING MANAGERS
PORTFOLIO
--------------------------------------------------------------------------------------------
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 - Putnam
Portfolio
--------------------------------------------------------------------------------------------
Stock Portfolio - T. Rowe Price
--------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
SEASONS SELECT PORTFOLIOS
PORTFOLIO MANAGEMENT ALLOCATED AMONG
PORTFOLIO THE FOLLOWING MANAGERS
--------------------------------------------------------------------------------------------
Large Cap Growth Portfolio - Bankers Trust
- GSAM
- Janus
--------------------------------------------------------------------------------------------
Large Cap Composite Portfolio - Bankers Trust
- SunAmerica
- T. Rowe Price
--------------------------------------------------------------------------------------------
Large Cap Value Portfolio - Bankers Trust
- T. Rowe Price
- WMC
--------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio - Bankers Trust
- T. Rowe Price
- WMC
--------------------------------------------------------------------------------------------
Mid Cap Value Portfolio - Bankers Trust
- GSAM
- Lord Abbett
--------------------------------------------------------------------------------------------
Small Cap Portfolio - Bankers Trust
- Lord Abbett
- SunAmerica
--------------------------------------------------------------------------------------------
International Equity Portfolio - Bankers Trust
- GSAM-International
- Lord Abbett
(subcontracted to Fuji-Lord Abbett)
--------------------------------------------------------------------------------------------
Diversified Fixed Income Portfolio - Bankers Trust
- SunAmerica
- WMC
--------------------------------------------------------------------------------------------
Cash Management Portfolio - SunAmerica
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SEASONS FOCUSED PORTFOLIOS
PORTFOLIO MANAGEMENT ALLOCATED AMONG
THE FOLLOWING MANAGERS
PORTFOLIO
------------------------------------------------------------------------------------------------------------------
Focus Growth Portfolio - Alger
- Jennison
- Marsico
------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
The primary investment manager(s) and/or the management team(s) for each
Portfolio and Managed Component is set forth in the following tables.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO OR MANAGED NAME AND TITLE OF PORTFOLIO
COMPONENT MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
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 Portfolios) 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 Portfolios) (Domestic Equity Investment Team) SunAmerica as an equity
analyst in 1993.
- Fixed Income Investment Team
---------------------------------------------------------------------------------------------------------
Janus/Growth Janus - Michael Dugas Mr. Dugas joined Janus in
component Senior Portfolio Manager 1993. He manages separate
(Multi-Managed accounts in the Diversified
Seasons Portfolios) Growth Discipline and serves
as an assistant portfolio
manager of Janus Mercury
Fund.
---------------------------------------------------------------------------------------------------------
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 Portfolios)
---------------------------------------------------------------------------------------------------------
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>
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 GROWTH BANKERS TRUST - Scott Brunenavs Mr. Brunenavs joined the firm
PORTFOLIO Vice President and in 2000, after six years of
Portfolio Manager experience including
portfolio manager for large
and small cap indices at
Barclays Global Investors, as
head equity trader at LSV
Asset Management and
portfolio
manager/quantitative analyst
for TradeStreet Investment
Associates, Inc.
- Singleton Cox Ms. Cox joined the firm in
Vice President and 1994 as a portfolio manager.
Portfolio Manager She is responsible for
designated portfolios
tracking equity indices,
overseeing operational and
client service for designated
relationships and
coordinating portfolio
restructuring mandates.
- Patrick Cannon Mr. Cannon joined the firm in
Director 2000 and is head of the US
Equity Index Management.
Prior to that he has 10 years
experience in various manage-
ment, trading and strategic
positions at Barclays Global
Investors, including
principal and head of small
cap equities and member of
global index investment
sub-committee, as
quantitative asset consultant
for IPAC Securities Limited
and as company statistician
for Johnson and Johnson
Pacific.
- Kai Yee Wong Ms. Wong joined the firm in
Vice President and 1993. She is a portfolio man-
Portfolio Manager ager for US Equity Index.
---------------------------------------------------------------------------------------------------------
</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))
---------------------------------------------------------------------------------------------------------
GSAM - George D. Adler Mr. Adler joined GSAM as a
Vice President and Senior portfolio manager in 1997.
Portfolio Manager From 1990 to 1997, he was a
portfolio manager at Liberty
Investment Management, Inc.
("Liberty").
- Robert G. Collins Mr. Collins joined GSAM as a
Vice President and Senior portfolio manager and
Portfolio Manager co-chair of the Growth Equity
Investment Committee in 1997.
From 1991 to 1997, he was a
portfolio manager at Liberty.
His past experience includes
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 of
Liberty.
- Gregory H. Ekizian Mr. Ekizian joined GSAM as
Vice President and Senior portfolio manager and Co-
Portfolio Manager 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
("Eagle").
- Scott Kolar Mr. Kolar joined GSAM as an
Associate and Portfolio Manager equity analyst in 1997 and
became a portfolio manager in
1999. From 1994 to 1997, he
was an equity analyst and
information systems
specialist at Liberty.
---------------------------------------------------------------------------------------------------------
</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))
---------------------------------------------------------------------------------------------------------
- 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.
- 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 - Michael Dugas See above.
Portfolio Manager
- Marc Pinto Mr. Pinto joined Janus in
Portfolio Manager 1994. He manages
institutional separate
accounts in the Large Cap
Growth discipline, and he has
also served as assistant
portfolio manager of Janus
Twenty and Janus Growth and
Income Funds.
---------------------------------------------------------------------------------------------------------
Large Cap Bankers Trust - Scott Brunenavs See above.
Composite Portfolio Vice President and
Portfolio Manager
- Singleton Cox See above.
Vice President and
Portfolio Manager
- Patrick Cannon See above.
Director
- Kai Yee Wong See above.
Vice President and
Portfolio Manager
----------------------------------------------------------------------
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>
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))
---------------------------------------------------------------------------------------------------------
LARGE CAP VALUE BANKERS TRUST - Scott Brunenavs See above.
PORTFOLIO Vice President and
Portfolio Manager
- Singleton Cox See above.
Vice President and
Portfolio Manager
- Patrick Cannon See above.
Director
- Kai Yee Wong See above.
Vice President and
Portfolio Manager
----------------------------------------------------------------------
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 - Scott Brunenavs See above.
Portfolio Vice President and
Portfolio Manager
- Singleton Cox See above.
Vice President and
Portfolio Manager
- Patrick Cannon See above.
Director
- Kai Yee Wong See above.
Vice President and
Portfolio Manager
----------------------------------------------------------------------
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.
---------------------------------------------------------------------------------------------------------
</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))
---------------------------------------------------------------------------------------------------------
WMC - Robert D. Rands Mr. Rands joined WMC in 1978
Senior Vice President and Partner as a special situations ana-
lyst and became a portfolio
manager in 1983.
- Steven Angeli Mr. Angeli joined WMC as a
Vice President and research analyst in 1994
Portfolio 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 - Scott Brunenavs See above.
Portfolio Vice President and
Portfolio Manager
- Singleton Cox See above.
Vice President and
Portfolio Manager
- Patrick Cannon See above.
Director
- Kai Yee Wong See above.
Vice President and
Portfolio Manager
----------------------------------------------------------------------
GSAM - Eileen A. Aptman Ms. Aptman joined GSAM as a
Vice President and Senior research analyst in 1993. She
Portfolio Manager became a portfolio manager in
1996.
- Matthew B. McLennan Mr. McLennan joined GSAM as a
Vice President and Senior research analyst in 1995 and
Portfolio Manager became a portfolio manager in
1996. From 1994 to 1995, he
worked in the Investment
Banking Division of Goldman
Sachs in Australia.
- Chip Otness Mr. Otness joined GSAM as a
Vice President and Senior senior portfolio manager in
Portfolio Manager 2000. From 1998 to 2000, he
headed Dolphin Asset Manage-
ment. From 1970 to 1998, he
worked at J.P. Morgan most
recently as a managing
director and senior portfolio
manager responsible for
small-cap institutional
equity investments.
---------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO OR MANAGED NAME AND TITLE OF PORTFOLIO
COMPONENT MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
TEAM(S))
---------------------------------------------------------------------------------------------------------
- Eileen Rominger Ms. Rominger joined GSAM as a
Managing Director and Senior senior portfolio manager in
Portfolio Manager 1999. From 1981 to 1999, she
worked at Oppenheimer Capi-
tal, most recently as a
senior portfolio manager.
---------------------------------------------------------------------------------------------------------
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 - Peter Kuntz Mr. Kuntz joined the firm in
Managing Director 1980, formerly serving in
performance measurement
analysis and sales. He is the
Head of International Equity
Index funds, responsible for
researching and developing
international passive equity
strategies, and senior
portfolio manager.
----------------------------------------------------------------------
Lord Abbett - Stephen J. McGruder Mr. McGruder has been a port-
Senior 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)
---------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO OR MANAGED NAME AND TITLE OF PORTFOLIO
COMPONENT MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
TEAM(S))
---------------------------------------------------------------------------------------------------------
International Equity Bankers Trust - Kathleen Condon See above.
Portfolio Managing Director and Chief
Investment Officer of Structured
Investments (passively managed
portion)
---------------------------------------------------------------------------------------------------------
GSAM- - Alice Lui Ms. Lui joined GSAM-Interna-
International Vice President and tional as a portfolio manager
Portfolio Manager in 1990.
- Shogo Maeda Mr. Maeda joined GSAM-
Managing Director and Senior International as a portfolio
Portfolio Manager manager in 1994. From 1987 to
1994, he worked at Nomura
Investment Management Incor-
porated as a Senior Portfolio
Manager.
- Susan Noble Ms. Noble joined GSAM-Inter-
Managing 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.
- Andrew Orchard Mr. Orchard joined GSAM-
Executive Director and Senior International as a portfolio
Portfolio Manager manager in 1999. From 1994 to
1999, he was a portfolio man-
ager at Morgan Grenfell Asset
Management where he managed
global equity portfolios and
chaired Morgan Grenfell's
Global Sector Committee.
---------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO OR MANAGED NAME AND TITLE OF PORTFOLIO
COMPONENT MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
TEAM(S))
---------------------------------------------------------------------------------------------------------
- Ravi Shanker Mr. Shanker joined GSAM-
Vice President and Senior International as an
Portfolio Manager 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.
- Robert Stewart Mr. Stewart joined GSAM-
Executive Director and Senior International as a portfolio
Portfolio Manager manager in 1996. He is a mem-
ber of the European Equity
Team. From 1996 to 1998, he
was a portfolio manager in
Japan where he managed Japa-
nese Equity Institutional
Portfolios. Prior to that, he
was a portfolio manager at
CINMan from 1989 to 1996
where he managed
international equities.
- Siew-Hua Thio Ms. Thio joined GSAM-Inter-
Vice President and national as a portfolio
Portfolio Manager 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>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO OR MANAGED NAME AND TITLE OF PORTFOLIO
COMPONENT MANAGER(S) MANAGER(S) (AND/OR MANAGEMENT EXPERIENCE
TEAM(S))
---------------------------------------------------------------------------------------------------------
Diversified Fixed Bankers Trust - Louis R. D'Arienzo Mr. D'Arienzo is portfolio
Income Portfolio Vice President and manager for the Fixed Income
Portfolio Manager group, responsible for
managing structured fixed
income accounts. He joined
the firm in 1981 serving in
trading and investment
positions for structured
portfolios and in quanti-
tative analysis of fixed
income and derivative
securities.
----------------------------------------------------------------------
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
Investment 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>
42
<PAGE>
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.
--------------------------------------------------------------------------------
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 (Anchor National). So
if you would like to invest in shares of a Portfolio, you must purchase a
Seasons, Seasons Select or Seasons Select II Variable Annuity Contract from
Anchor National. Class B shares of the Portfolios, which are issued only to
contract holders of the Seasons Select II Variable Annuity Contract, are offered
through this prospectus. Class A shares, which are issued only to contract
holders of the Seasons and Seasons Select Variable Annuity Contracts, are
offered through a separate prospectus.
The Seasons, Seasons Select and Seasons Select II 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, Seasons Select and Seasons Select II
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, Seasons
Select or Seasons Select II Variable Annuity Contract in the prospectus that
offers the Contract, which accompanies this Prospectus.
SERVICE FEES
Class B shares of each Portfolio are subject to a Rule 12b-1 plan that provides
for service fees payable at the annual rate of 0.15% of the average daily net
assets of such Class B shares. The service fees will be used to reimburse Anchor
National for expenditures made fo financial intermediaries for providing
services to contract holders of the Seasons Select II Variable Annuity Contract
who are the indirect beneficial owners of the Portfolios' Class B shares.
Because these service fees are paid out of each Portfolio's Class B assets on an
ongoing basis, over time these fees will increase the cost of your investment
and affect your return.
TRANSACTION POLICIES
VALUATION OF SHARES. The net asset value per share (NAV) for each Portfolio and
class 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 the net
assets of each class by the number of such class's shares outstanding.
43
<PAGE>
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.
Because Class B shares are subject to service fees, while Class A shares are
not, the net asset value per share of the Class B shares will generally be lower
than the net asset value per share of the Class A shares of each Portfolio.
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. However, as discussed
above, Class B shares are subject to service fees pursuant to a 12b-1 plan.
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.
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 and share class on
which they were paid.
The per share dividends on Class B shares will generally be lower than the per
share dividends on Class A shares of the same Portfolio as a result of the fact
that Class B shares are subject to service fees, while Class A shares are not.
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.
44
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following Financial Highlights tables for Class A shares of each Portfolio
is intended to help you understand the Portfolios' financial performance since
inception. Certain information reflects financial results for a single Portfolio
Class A share. The total returns in each table represent the rate that an
investor would have earned on an investment in a Class A share of each Portfolio
(assuming reinvestment of all dividends and distributions). Class B shares would
have had substantially similar total returns as those shown for Class A shares
because the shares are invested in the same portfolio of securities as the
Class A shares. The total returns of the Class B shares would differ from those
of the Class A shares only to the extent that Class B shares are subject to
service fees, while Class A shares are not. If these amounts were reflected,
returns would be less than those shown. The Financial Highlights information set
forth below has been audited by PricewaterhouseCoopers LLP, whose report, along
with each Portfolio's financial statements, is included in the Trust's annual
report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Net
Net realized & Dividends Dividends
Asset unrealized declared from net Net Asset
Value Net gain (loss) Total from from net realized Value
beginning investment on investment investment gain on end of Total
Period ended of period income*/** investments operations income investments period Return***
-----------------------------------------------------------------------------------------------------------------------------
<S> <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%
3/31/99 12.85 0.16 4.41 4.57 (0.18) (0.03) 17.21 35.98
3/31/00 17.21 0.18 7.72 7.90 (0.19) (3.44) 21.48 49.03
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
3/31/99 12.37 0.28 3.10 3.38 (0.23) (0.02) 15.50 27.73
3/31/00 15.50 0.33 5.24 5.57 (0.30) (2.17) 18.60 37.90
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
3/31/99 11.79 0.43 1.57 2.00 (0.36) (0.10) 13.33 17.27
3/31/00 13.33 0.49 1.87 2.36 (0.41) (0.99) 14.29 18.52
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
3/31/99 11.29 0.53 0.72 1.25 (0.40) (0.07) 12.07 11.19
3/31/00 12.07 0.57 0.49 1.06 (0.54) (0.40) 12.19 9.16
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
3/31/99 11.71 0.14 0.90 1.04 (0.12) -- 12.63 9.02
3/31/00 12.63 0.21 2.04 2.25 (0.22) (0.71) 13.95 18.14
Stock Portfolio
4/15/97-3/31/98 10.00 0.03 4.80 4.83 (0.02) (0.15) 14.66 48.59
3/31/99 14.66 0.03 1.84 1.87 (0.02) (0.30) 16.21 13.05
3/31/00 16.21 (0.01) 4.47 4.46 -- (1.07) 19.60 28.35
---------------------------------------------------------------------------------------------------------------- ----------
<CAPTION>
--------------------- ------------------------------------------------
Net Ratio of Ratio of net
Assets expenses investment
end of to average income to
period net average net Portfolio
Period ended (000's) assets+ assets+ turnover
--------------------- ------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Managed Growth Portfolio
4/15/97-3/31/98 $32,481 1.29%# 1.52%# 114%
3/31/99 69,712 1.19 1.11 124
3/31/00 103,976 1.15 0.98 117
Multi-Managed Moderate Growth Portfolio
4/15/97-3/31/98 32,622 1.21# 2.36# 101
3/31/99 75,694 1.16 2.08 105
3/31/00 107,421 1.10 1.97 108
Multi-Managed Income/Equity Portfolio
4/15/97-3/31/98 25,957 1.14# 3.72# 46
3/31/99 62,121 1.14 3.51 65
3/31/00 74,778 1.10 3.61 68
Multi-Managed Income Portfolio
4/15/97-3/31/98 18,378 1.06# 4.69# 47
3/31/99 50,250 1.06 4.50 43
3/31/00 54,037 1.06 4.72 61
Asset Allocation: Diversified Growth Portfolio
4/15/97-3/31/98 50,384 1.21# 2.06# 166
3/31/99 117,663 1.21 1.21 149
3/31/00 161,058 1.21 1.58 156
Stock Portfolio
4/15/97-3/31/98 42,085 1.21# 0.24# 46
3/31/99 97,047 1.10 0.20 52
3/31/00 132,831 1.06 (0.05) 75
--------------------- ------------------------------------------------
</TABLE>
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Total return is not annualized and does not reflect expenses that apply to
the separate accounts of Anchor National Life Insurance Company. If such
expenses had been included, total return would have been lower.
# Annualized
+ The investment adviser waived a portion of or all fees and assumed a portion
of or all expenses for the Portfolios. If all fees and expenses had been
incurred by the Portfolios, the ratio of expenses to average net assets and
the ratio of net investment income to average net assets would have been as
follows:
<TABLE>
<CAPTION>
Net Investment Income
Expenses (Loss)
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% 1.15% 1.37% 1.11% 0.98%
Multi-Managed Moderate Growth Portfolio..................... 1.40 1.16 1.10 2.17 2.08 1.97
Multi-Managed Income/Equity Portfolio....................... 1.43 1.14 1.10 3.43 3.51 3.61
Multi-Managed Income Portfolio.............................. 1.50 1.07 1.08 4.25 4.49 4.70
Asset Allocation: Diversified Growth Portfolio.............. 1.53 1.22 1.21 1.74 1.20 1.58
Stock Portfolio............................................. 1.26 1.10 1.06 0.19 0.20 (0.05)
</TABLE>
45
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Net realized & Dividends Dividends
Asset unrealized declared from net Net Asset
Value Net gain (loss) Total from from net realized Value
beginning investment on investment investment gain on end of Total
Period ended of period income*/** investments operations income investments period Return***
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio
2/8/99-3/31/99 $10.00 $ -- $0.77 $ 0.77 -- -- $10.77 7.70%
3/31/00 10.77 (0.04) 4.53 4.49 (0.01) (0.30) 14.95 41.95
Large Cap Composite Portfolio
2/8/99-3/31/99 10.00 0.01 0.43 0.44 -- -- 10.44 4.40
3/31/00 10.44 0.01 2.64 2.65 (0.02) (0.02) 13.05 25.42
Large Cap Value Portfolio
2/8/99-3/31/99 10.00 0.02 0.19 0.21 -- -- 10.21 2.10
3/31/00 10.21 0.13 0.44 0.57 (0.11) (0.26) 10.41 5.59
Mid Cap Growth Portfolio
2/8/99-3/31/99 10.00 -- 0.46 0.46 -- -- 10.46 4.60
3/31/00 10.46 (0.09) 7.94 7.85 (0.00) (0.36) 17.95 75.89
Mid Cap Value Portfolio
2/8/99-3/31/99 10.00 0.02 (0.04) (0.02) -- -- 9.98 (0.20)
3/31/00 9.98 0.11 0.84 0.95 (0.09) (0.32) 10.52 9.76
Small Cap Portfolio
2/8/99-3/31/99 10.00 -- (0.09) (0.09) -- -- 9.91 (0.90)
3/31/00 9.91 (0.03) 4.65 4.62 (0.01) (0.44) 14.08 46.99
International Equity Portfolio
2/8/99-3/31/99 10.00 0.02 0.32 0.34 -- -- 10.34 3.40
3/31/00 10.34 0.01 3.21 3.22 (0.06) (0.30) 13.20 31.36
Diversified Fixed Income Portfolio
2/8/99-3/31/99 10.00 0.06 (0.12) (0.06) -- -- 9.94 (0.60)
3/31/00 9.94 0.53 (0.42) 0.11 (0.42) -- 9.63 1.22
Cash Management Portfolio
2/8/99-3/31/99 10.00 0.06 -- 0.06 -- -- 10.06 0.60
3/31/00 10.06 0.45 0.01 0.46 (0.28) -- 10.24 4.59
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net Ratio of net
Assets Ratio of investment
end of expenses income to
period to average average net Portfolio
Period ended (000's) net assets+ assets+ turnover
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio
2/8/99-3/31/99 $14,916 1.10%# 0.20%# 6%
3/31/00 27,860 1.10++ (0.31) 74
Large Cap Composite Portfolio
2/8/99-3/31/99 11,834 1.10# 0.55# 8
3/31/00 18,672 1.10++ 0.08 38
Large Cap Value Portfolio
2/8/99-3/31/99 13,625 1.10# 1.53# 5
3/31/00 16,751 1.10++ 1.21 52
Mid Cap Growth Portfolio
2/8/99-3/31/99 13,887 1.15# (0.15)# 5
3/31/00 28,059 1.15++ (0.68) 68
Mid Cap Value Portfolio
2/8/99-3/31/99 13,088 1.15# 1.60# 6
3/31/00 16,640 1.15 1.02 72
Small Cap Portfolio
2/8/99-3/31/99 11,140 1.15# 0.31# 3
3/31/00 21,144 1.15 (0.24) 103
International Equity Portfolio
2/8/99-3/31/99 13,693 1.30# 1.43# 7
3/31/00 20,390 1.30++ 0.12 54
Diversified Fixed Income Portfolio
2/8/99-3/31/99 15,229 1.00# 4.53# 30
3/31/00 16,784 1.00 5.48 46
Cash Management Portfolio
2/8/99-3/31/99 2,021 0.85# 3.97# --
3/31/00 4,123 0.85 4.63 --
---------------------
</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
++ Net custody credits of 0.1%, 0.02%, 0.02%, 0.02% and 0.02%, respectively,
for the Large Cap Growth, Large Cap Composite, Large Cap Value, Mid Cap
Growth and International Equity Portfolios
+ 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% 1.30% (0.82)% (0.51)%
Large Cap Composite......................... 2.33 1.48 (0.68) (0.30)
Large Cap Value............................. 2.16 1.39 0.47 0.92
Mid Cap Growth.............................. 2.22 1.35 (1.22) (0.88)
Mid Cap Value............................... 2.23 1.47 0.52 0.70
Small Cap................................... 2.46 1.45 (1.00) (0.54)
International Equity........................ 3.59 1.91 (0.86) (0.49)
Diversified Fixed Income.................... 1.91 1.31 3.62 5.17
Cash Management............................. 8.41 2.95 (3.59) 2.53
</TABLE>
46
<PAGE>
--------------------------------------------------------------------------------
FOR MORE INFORMATION
--------------------------------------------------------------------------------
The following documents contain more information about the Portfolios and
are available free of charge upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Contain financial statements, performance data
and information on portfolio holdings. The annual report also contains a
written analysis of market conditions and investment strategies that
significantly affected a Portfolio's performance for the most recently
completed fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains additional information
about the Portfolios' policies, investment restrictions and business
structure. This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the
Portfolios by contacting:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
1-800-445-7862
Information about the Portfolios (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call (800) SEC-0330 for information on the operation of the
Public Reference Room. Information about the Portfolios is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by electronic request at the
following e-mail address: [email protected], or 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
47
<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 Prospectuses of Seasons Series Trust (the
"Trust") dated July 5, 2000 (Class A shares Prospectus) and October 16, 2000
(Class B shares Prospectus). This Statement of Additional Information
incorporates the Prospectuses by reference. The Trust's audited financial
statements are incorporated into this Statement of Additional Information by
reference to its 2000 annual report to shareholders. You may request a copy of
the Prospectuses 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
October 16, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
----
THE TRUST ..................................................................B-3
INVESTMENT OBJECTIVES AND POLICIES .........................................B-4
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS ..........................B-43
INVESTMENT RESTRICTIONS ...................................................B-47
TRUST OFFICERS AND TRUSTEES ...............................................B-49
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT ..............................B-52
SUBADVISORY AGREEMENTS ....................................................B-57
RULE 12B-1 PLAN ...........................................................B-62
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES ................................B-63
SHARES OF THE TRUST .......................................................B-63
PRICE OF SHARES ...........................................................B-64
EXECUTION OF PORTFOLIO TRANSACTIONS .......................................B-65
GENERAL INFORMATION .......................................................B-70
Custodian ........................................................B-70
Independent Accountants and Legal Counsel ........................B-70
Reports to Shareholders ..........................................B-70
Shareholder and Trustee Responsibility ...........................B-70
Registration Statement ...........................................B-71
FINANCIAL STATEMENTS ......................................................B-71
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 16 separate Portfolios (each, a
"Portfolio" and collectively, the "Portfolios").
On October 3, 1998, the Board of Trustees approved the creation of the
Large Cap Growth, Large Cap Composite, Large Cap Value, Mid Cap Growth, Mid Cap
Value, Small Cap, International Equity, Diversified Fixed Income and Cash
Management Portfolios. On May 23, 2000 the Board of Trustees approved the
creation of the Focus Growth Portfolio. On May 23, 2000, the Board of Trustees
approved the creation of Class B shares and the renaming of all issued and
outstanding shares as Class A shares. Class A shares of each Portfolio are
offered only to contract holders of the Seasons and Seasons Select Variable
Annuity Contracts. Class B shares of each Portfolio are offered only to contract
holders of the Seasons Select II Variable Annuity contract. Class B shares of a
given Portfolio are identical in all respects to Class A shares of the same
Portfolio, except that (i) each class may bear differing amounts of certain
class-specific expenses; (ii) Class B shares are subject to service fees, while
Class A shares are not; and (iii) Class B shares have voting rights on matters
that pertain to the Rule 12b-1 plan adopted with respect to Class B shares. The
Board of Trustees may establish additional portfolios or classes 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 "Seasons Focused Portfolio") are available in addition to the
Seasons Portfolios through the Seasons Select and Seasons Select II Variable
Annuity Contracts. The Multi-Managed Seasons, Multi-Managed Seasons Select and
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
B-3
<PAGE>
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 Prospectus, SunAmerica may retain subadvisers
(each, a "Manager" and together with SunAmerica, the "Managers") to assist in
management of one or more Portfolios.
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 terminologies
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 terminologies that appears in the Prospectus under the section entitled
"Glossary." Unless otherwise indicated, investment restrictions, including
percentage limitations, apply at the time of purchase.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
SEASONS PORTFOLIOS
------------------------------ ---------------------------- --------------------------- ----------------------------
SUNAMERICA/ SUNAMERICA/
AGGRESSIVE GROWTH 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 protection securities protection securities protection securities
Portfolio/Managed Component - Short sales - Loan participations and - Short sales
PERIODICALLY invest? - Inverse floaters assignments - Inverse floaters
- Floating rate obligations - Short sales - Floating rate obligations
- When-issued and delayed- - Inverse floaters - When-issued and delayed-
delivery securities - Floating rate delivery securities
- Equity swaps obligations - Equity swaps
- Borrowing - When-issued and delayed- - Borrowing
- Reverse repurchase delivery securities - Reverse repurchase
agreements - Equity swaps agreements
- Roll transactions - Borrowing - Roll transactions
- Standby commitments - Reverse repurchase - Standby commitments
- Warrants agreements - Warrants
- Forward foreign currency - Roll transactions - Forward foreign currency
exchange contracts - Standby commitments exchange contracts
- Portfolio trading - Warrants - Portfolio trading
- Forward foreign currency
exchange contracts
- Portfolio trading
------------------------------ ---------------------------- --------------------------- ----------------------------
What other types of risk may - Currency volatility - Currency volatility - Currency volatility
POTENTIALLY or PERIODICALLY
affect the Portfolio/Managed
Component?
------------------------------ ---------------------------- --------------------------- ----------------------------
B-4
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
SEASONS PORTFOLIOS (CONTINUED)
-------------------------- -------------------------------- --------------------------- ----------------------------
WMC/ ASSET ALLOCATION:
FIXED INCOME DIVERSIFIED GROWTH
COMPONENT 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/Managed - Loan participations and - Short sales - Short sales
Component PERIODICALLY assignments - Inverse floaters - Floating rate obligations
invest? - Short sales - Floating rate - When-issued and
- Inverse floaters obligations delayed-delivery
- Floating rate obligations - When-issued and delayed- securities
- When-issued and delivery securities - Equity swaps
delayed-delivery securities - Equity swaps - Borrowing
- Equity swaps - Borrowing - Standby commitments
- Borrowing - Reverse repurchase - Warrants
- Reverse repurchase 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
- Hybrid instruments
-------------------------- -------------------------------- --------------------------- ----------------------------
What other types of risk - Currency volatility - Currency volatility - Currency volatility
may POTENTIALLY or
PERIODICALLY affect the
Portfolio/Managed
Component?
-------------------------- -------------------------------- --------------------------- ----------------------------
</TABLE>
B-5
<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 protection securities protection securities protection securities
Portfolio PERIODICALLY - Loan participations and - Loan participations and - Loan participations and
invest? 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 - When-issued and - When-issued and
delayed-delivery securities delayed-delivery delayed-delivery securities
- Equity swaps securities - Equity swaps
- Borrowing - Equity swaps - Borrowing
- Reverse repurchase - Borrowing - Reverse repurchase
agreements - Reverse repurchase agreements
- Roll transactions agreements - Roll transactions
- Standby commitments - Roll transactions - Standby commitments
- Warrants - Standby commitments - Warrants
- Forward foreign currency - Warrants - Forward foreign currency
exchange contracts - Forward foreign currency exchange contracts
- Portfolio trading exchange contracts - Portfolio trading
- Portfolio trading - PFICs
--------------------------- ------------------------------- ---------------------------- -------------------------------
What other types of risk - Currency volatility - Currency volatility - Currency volatility
may POTENTIALLY or
PERIODICALLY affect the
Portfolio?
--------------------------- ------------------------------- ---------------------------- -------------------------------
</TABLE>
B-6
<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 protection securities protection securities protection securities
Portfolio PERIODICALLY - Loan participations and - Loan participations and - Loan participations and
invest? 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 - When-issued and - When-issued and
delayed-delivery securities delayed-delivery delayed-delivery securities
- Equity swaps securities - Equity swaps
- Borrowing - Equity swaps - Borrowing
- Reverse repurchase - Borrowing - Reverse repurchase
agreements - Reverse repurchase agreements
- Roll transactions agreements - Roll transactions
- Standby commitments - Roll transactions - Standby commitments
- Warrants - Standby commitments - Warrants
- Forward foreign currency - Warrants - Forward foreign currency
exchange contracts - Forward foreign currency exchange contracts
- Portfolio trading exchange contracts - Portfolio trading
- Portfolio trading
------------------------------ ------------------------------- ---------------------------- ------------------------------
What other types of risk may - Currency volatility - Currency volatility - Currency volatility
POTENTIALLY or PERIODICALLY
affect the Portfolio?
------------------------------ ------------------------------- ---------------------------- ------------------------------
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
SEASONS SELECT PORTFOLIOS (CONTINUED)
------------------------------ ------------------------------ ---------------------------- ------------------------------
INTERNATIONAL DIVERSIFIED FIXED INCOME CASH MANAGEMENT PORTFOLIO
EQUITY 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 protection securities protection securities protection securities
Portfolio PERIODICALLY - Loan participations and - Loan participations and - Floating rate obligations
invest? assignments assignments - When-issued and
- Short sales - Short sales delayed-delivery securities
- Inverse floaters - Inverse floaters - Reverse repurchase
- Floating rate obligations - Floating rate obligations agreements
- When-issued and - When-issued and - Roll transactions
delayed-delivery securities delayed-delivery - Standby commitments
- Equity swaps securities - Illiquid securities
- Borrowing - Equity swaps (up to 10%)
- Reverse repurchase - Borrowing
agreements - Reverse repurchase
- Roll transactions agreements
- Standby commitments - Roll transactions
- Warrants - Standby commitments
- Forward foreign currency - Warrants
exchange contracts - Forward foreign currency
- Portfolio trading exchange contracts
- Portfolio trading
------------------------------ ------------------------------ ---------------------------- ------------------------------
What other types of risk may - Currency volatility - Currency volatility - N/A
POTENTIALLY or PERIODICALLY
affect the Portfolio?
------------------------------ ------------------------------ ---------------------------- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
SEASONS FOCUSED PORTFOLIOS
----------------------------- ----------------------------------------------------------------------
FOCUS GROWTH PORTFOLIO
----------------------------- ----------------------------------------------------------------------
<S> <C>
In what other types of - U.S. Treasury inflation protection securities
investments may the - Loan participations and assignments
Portfolio PERIODICALLY - Short sales
invest? - Floating rate obligations
- When-issued and delayed-delivery securities
- Equity swaps
- Borrowing
- Reverse repurchase agreements
- Portfolio trading
----------------------------- ----------------------------------------------------------------------
What other types of risk - Currency volatility
may POTENTIALLY or
PERIODICALLY affect the
Portfolio?
----------------------------- ----------------------------------------------------------------------
</TABLE>
B-8
<PAGE>
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 Price may invest idle cash of the STOCK PORTFOLIO and
its portion of the LARGE CAP COMPOSITE, LARGE CAP VALUE and MID CAP GROWTH
PORTFOLIOS in money market funds that it manages.
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 are 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 are 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
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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.
EXTENDABLE COMMERCIAL NOTES ("ECNS") - ECNs are very similar
to commercial paper except that with ECNs the issuer has the option to extend
maturity to 390 days. ECNs are issued at a discount rate with an initial
redemption of not more than 90 days from the date of issue. The issuer of an ECN
has the option to extend maturity to 390 days. If ECNs are not redeemed by the
issuer on the initial redemption date the issuer will pay a premium (step-up)
rate based on the ECNs' credit rating at the time. The CASH MANAGEMENT PORTFOLIO
may purchase ECNs only if judged by the Manager to be of suitable investment
quality. This includes ECNs that are (a) rated in the two highest categories by
Standard & Poor's and by Moody's, or (b) other ECNs 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 ECNs 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 ECNs 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 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.
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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 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.
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
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interest and principal of these securities. However, the guarantees do not
extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates. These certificates are in most cases
pass-through instruments, through which the holder receives a share of all
interest and principal payments, including prepayments, on the mortgages
underlying the certificate, net of certain fees.
The yield on mortgage-backed securities is based on the
average expected life of the underlying pool of mortgage loans. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life of a particular issue of pass-through
certificates. Mortgage-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage obligations.
Thus, the actual life of any particular pool will be shortened by any
unscheduled or early payments of principal and interest. Principal prepayments
generally result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages. The occurrence of prepayments is affected
by a wide range of economic, demographic and social factors and, accordingly, it
is not possible to predict accurately the average life of a particular pool.
Yield on such pools is usually computed by using the historical record of
prepayments for that pool, or, in the case of newly-issued mortgages, the
prepayment history of similar pools. The actual prepayment experience of a pool
of mortgage loans may cause the yield realized by the Portfolio to differ from
the yield calculated on the basis of the expected average life of the pool.
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:
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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.
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
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commercial banks, savings and loans associations, credit unions, savings banks,
insurance companies, investment banks or special purpose subsidiaries of the
foregoing. For federal income tax purposes, such trusts are generally treated as
grantor trusts or REMICs and, in either case, are generally not subject to any
significant amount of federal income tax at the entity level.
The mortgage pools underlying Conventional Mortgage
Pass-Throughs consist of conventional mortgage loans evidenced by promissory
notes secured by first mortgages or first deeds of trust or other similar
security instruments creating a first lien on residential or mixed residential
and commercial properties. Conventional Mortgage Pass-Throughs (whether fixed or
adjustable rate) provide for monthly payments that are a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amount paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans. A trust fund with respect to which a REMIC election has been
made may include regular interests in other REMICs, which in turn will
ultimately evidence interests in mortgage loans.
Conventional mortgage pools generally offer a higher rate of
interest than government and government-related pools because of the absence of
any direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loans, title, pool and hazard insurance and letters of credit. The insurance and
guarantees may be issued by private insurers and mortgage poolers. Although the
market for such securities is becoming increasingly liquid, mortgage-related
securities issued by private organizations may not be readily marketable.
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.
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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 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
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of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicer to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support that fall into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default ensures payment through insurance policies or letters of credit obtained
by the issuer or sponsor from third parties. A Portfolio will not pay any
additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit support could
adversely affect the return on an investment in such a security.
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.
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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 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 which 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 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
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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 involve the selling of a security that a Portfolio doesn't
own in anticipation of a decline in the market value of that security. 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.
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.
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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
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
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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. 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.
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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 objective and policies and not for
the purposes of investment leverage. A Portfolio enters into such
transactions only with the intention of actually receiving or delivering the
securities, although (as noted above) when-issued securities and firm
commitments may be sold prior to the settlement date. In addition, changes in
interest rates in a direction other than that expected by the
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.
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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 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
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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 the Commodities Futures Trading Commission ("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
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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.
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
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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 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
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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 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.
To the extent a Portfolio borrows for investment purposes, borrowing
creates leverage which is a speculative characteristic. 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
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of such Portfolios is authorized to borrow, and to pledge assets to secure
such borrowings, up to the maximum extent permissible under the 1940 Act
(I.E., presently 50% of net assets); provided that, with respect to the
Multi-Managed Seasons Portfolios such limitation will be calculated with
respect to the net assets allocated to the SunAmerica/Aggressive Growth
component of such Multi-Managed Seasons Portfolio. The time and extent to
which the component or Portfolios may employ leverage will be determined by
the respective Manager in light of changing facts and circumstances,
including general economic and market conditions, and will be subject to
applicable lending regulations of the Board of Governors of the Federal
Reserve Board.
Any such borrowing will be made pursuant to the requirements of the 1940
Act and will be made only to the extent that the value of each Portfolio's
assets less its liabilities, other than borrowings, is equal to at least 300%
of all borrowings including the proposed borrowing. If the value of a
Portfolio's assets, so computed, should fail to meet the 300% asset coverage
requirement, the Portfolio is required, within three business days, to reduce
its bank debt to the extent necessary to meet such requirement and may have
to sell a portion of its investments at a time when independent investment
judgment would not dictate such sale. Interest on money borrowed is an
expense the Portfolio would not otherwise incur, so that it may have little
or no net investment income during periods of substantial borrowings. Since
substantially all of a Portfolio's assets fluctuate in value, but borrowing
obligations are fixed when the Portfolio has outstanding borrowings, the net
asset value per share of a Portfolio correspondingly will tend to increase
and decrease more when the Portfolio's assets increase or decrease in value
than would otherwise be the case. A Portfolio's policy regarding use of
leverage is a fundamental policy, which may not be changed without approval
of the shareholders of the Portfolio.
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
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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.
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
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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. All Portfolios except the ASSET ALLOCATION:
DIVERSIFIED GROWTH, STOCK, DIVERSIFIED FIXED INCOME and CASH MANAGEMENT
PORTFOLIOS 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
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.
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.
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.
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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 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
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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 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
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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 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
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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 SEC has taken the
position that yield curve options are illiquid and, therefore, cannot exceed
the SEC illiquidity ceiling. Portfolio that may 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.
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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 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
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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 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.
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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.
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").
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The Portfolios will cover outstanding forward currency
contracts by maintaining liquid portfolio securities denominated in the currency
underlying the forward contract or the currency being hedged. To the extent that
a Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Trust's custodian will place cash or liquid securities
in a separate account of the Portfolio having a value equal to the aggregate
amount of the Portfolio's commitments under Forward Contracts entered into with
respect to position hedges and cross-hedges. If the value of the securities
placed in a separate account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such contracts.
As an alternative to maintaining all or part of the separate account, a
Portfolio may purchase a call option permitting the Portfolio to purchase the
amount of foreign currency being hedged by a forward sale contract at a price no
higher than the Forward Contract price or the Portfolio may purchase a put
option permitting the Portfolio to sell the amount of foreign currency subject
to a forward purchase contract at a price as high or higher than the Forward
Contract price. Unanticipated changes in currency prices may result in poorer
overall performance for a Portfolio than if it had not entered into such
contracts.
The precise matching of the Forward Contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between the
date the Forward Contract is entered into and the date it is sold. Accordingly,
it may be necessary for a Portfolio to purchase additional foreign currency on
the spot (I.E., cash) market (and bear the expense of such purchase), if the
market value of the security is less than the amount of foreign currency a
Portfolio is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the sale of
the portfolio security if its market value exceeds the amount of foreign
currency a Portfolio is obligated to deliver. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Forward Contracts involve
the risk that anticipated currency movements will not be accurately predicted,
causing a Portfolio to sustain losses on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring a
Portfolio to sell a currency, the Portfolio may either sell a portfolio security
and use the sale proceeds to make delivery of the currency or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Portfolio will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, a Portfolio may close out a Forward Contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. A Portfolio would realize a gain or loss as a result of entering into
such an offsetting Forward Contract under either circumstance to the extent the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and offsetting contract.
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
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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
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.
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.
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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 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 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
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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 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
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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 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.
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- 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).
- 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 & Poor's; 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 & Poor's. 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.
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- 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.
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)
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evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships that exist with the issuer; and (8) recognition by
management of obligations that may be present or may arise as a result of public
interest questions and preparations to meet such obligations.
Standard and Poor's ratings of commercial paper are graded
into four categories ranging from A for the highest quality obligations to D for
the lowest. A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 - This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation. A-2 - Capacity for timely payments on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated A-1. B - Issues in this category are regarded as having only adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities. C - This rating is assigned to short-term
debt obligations with a doubtful capacity for payment. D - The rating indicates
that the issues are either in default or are expected to be in default upon
maturity.
Duff & Phelps, Inc. ("Duff & Phelps") commercial paper ratings
are consistent with the short-term rating criteria utilized by money market
participants. Duff & Phelps commercial paper ratings refine the traditional 1
category. The majority of commercial issuers carry the higher short-term rating
yet significant quality differences within that tier do exist. As a consequence,
Duff & Phelps has incorporated gradations of 1+ and 1- to assist investors in
recognizing those differences.
Duff 1+ - Highest certainty of time repayment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations. Duff 1 - Very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor. Duff 1- - High certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 - Good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small. Duff 3 - Satisfactory liquidity and other
protection factors, qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected. Duff 4
- Speculative investment characteristics. Liquidity is not sufficient to insure
against disruption in debt service. Operating factors and market access may be
subject to a high degree of variation. Duff 5 - Default.
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
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existence of liquidity necessary to meet the issuer's obligations in a timely
manner. Fitch short-term ratings are as follows: F-1+ Exceptionally Strong
Credit Quality - Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment. F-1 Very Strong Credit Quality
- Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. F-2 Good Credit Quality - Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as good as it is for issues assigned F-1+ and
F-1 ratings. F-3 Fair Credit Quality - Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade. "B"- Securities posses speculative credit quality.
This designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions. "C"- Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment. D Default - Issues assigned this rating are in actual or
imminent payment default. LOC - The symbol LOC indicates that the rating is
based on a letter of credit issued by a commercial bank.
Thomson BankWatch, Inc. ("BankWatch") short-term ratings apply
only to unsecured instruments that have a maturity of one year or less. These
short-term ratings specifically assess the likelihood of an untimely payment of
principal and interest. TBW-1 is the highest category, which indicates a very
high degree of likelihood that principal and interest will be paid on a timely
basis. TBW-2 is the second highest category and, while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. "TBW-3"-This
designation represents Thomson BankWatch's lowest investment-grade category and
indicates that while the obligation is more susceptible to adverse developments
(both internal and external) than those with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.
"TBW-4"-This designation represents Thomson BankWatch's lowest rating category
and indicates that the obligation is regarded as non-investment grade and
therefore speculative.
CORPORATE DEBT SECURITIES. Moody's rates the long-term debt
securities issued by various entities from "Aaa" to "C."
Aaa - Best quality. These securities carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a larger, or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the fundamentally
strong position of these issues. Aa - High quality by all standards. They are
rated lower than the best bond 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
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for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. Ba - Have speculative elements; future cannot be
considered as well assured. The protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both good and bad
times over the future. Bonds in this class are characterized by uncertainty of
position. B - Generally lack characteristics of the desirable investment
assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Caa - Of poor standing.
Issues may be in default or there may be present elements of danger with respect
to principal or interest. Ca - Speculative in a high degree; often in default or
have other marked shortcomings. C - Lowest rated class of bonds; can be regarded
as having extremely poor prospects of ever attaining any real investment
standings.
Moody's may apply numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through Caa in its corporate bond rating
system. The modifier 1 indicates that the obligation ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates a ranking in the lower end of the generic rating
category.
Standard & Poor's rates the long-term securities debt of
various entities in categories ranging from "AAA" to "D" according to quality.
AAA - Highest rating. The obligor's capacity to pay interest and repay principal
is extremely strong. AA - High grade. Very strong capacity to pay interest and
repay principal. Generally, these bonds differ from AAA issues only in a small
degree. A - Have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than debt in higher rated categories. BBB
- Regarded as having adequate capacity to pay interest and repay principal.
These bonds normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for debt in higher
rated categories. BB, B, CCC, CC, C - Regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicated the lowest degree of
speculation and C the highest degree of speculation. While this debt will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. C1 - Reserved for
income bonds on which no interest is being paid. D - In default and payment of
interest and/or repayment of principal is in arrears.
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
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highest category. Ratings in the long-term debt categories may include a plus
(+) or minus (-) designation, which indicates where within the respective
category the issue is placed.
INVESTMENT RESTRICTIONS
The Trust has adopted for each Portfolio certain investment
restrictions that are fundamental policies and cannot be changed without the
approval of the holders of a majority of that Portfolio's outstanding shares.
Such majority is defined as the vote of the lesser of (i) 67% or more of the
outstanding shares present at a meeting, if the holders of more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of
the outstanding shares. All percentage limitations expressed in the following
investment restrictions are measured immediately after the relevant transaction
is made.
Each Portfolio may not:
1. With respect to the Asset Allocation: Diversified
Growth Portfolio, Stock Portfolio, Diversified Fixed Income Portfolio and 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, Stock Portfolio, Diversified Fixed Income Portfolio and 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
B-47
<PAGE>
options on such futures contracts, forward commitment transactions, forward
foreign currency exchange contracts, interest rate, mortgage and currency
swaps and interest rate floors and caps and may purchase Hybrid Instruments.
6. Make loans to others except for (a) the purchase of
debt securities; (b) entering into repurchase agreements; (c) the lending of its
portfolio securities; and (d) as otherwise permitted by exemptive order of the
SEC.
7. Borrow money, except that (i) each Portfolio may
borrow in amounts up to 33 1/3% (5% in the case of the Cash Management
Portfolio) of its total assets for temporary or emergency purposes, (ii) each
of the Multi-Managed Growth and Moderate Growth Portfolios, through its
SunAmerica/Aggressive Growth component, and the Large Cap Growth Portfolio,
Large Cap Composite Portfolio, Large Cap Value Portfolio, Mid Cap Growth
Portfolio, Mid Cap Value Portfolio, Small Cap Portfolio, International Equity
Portfolio and 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 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.
B-48
<PAGE>
12. Sell securities short, including short sales "against
the box" (I.E., where a Portfolio contemporaneously owns, or has the right to
acquire at no additional cost, securities identical or substantially similar to
those sold short) if as a result more than 25% of its net assets would be
subject to such short sales.
13. Purchase or sell securities of other investment
companies except (i) to the extent permitted by applicable law; and (ii) that
Janus 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.
<TABLE>
<CAPTION>
---------------------------------------- ------------------------------ --------------------------------------------
Principal Occupations
Name, Age and Address Position with the Trust During Past Five Years
--------------------- ----------------------- ----------------------
---------------------------------------- ------------------------------ --------------------------------------------
<S> <C> <C>
Genethia Hayes, 55 Trustee Director, Public Advocates (since 1998);
Board Member, Los Angeles Unified School
District Board of Education (since 1999);
Board Member, Multi-Cultural Collaborative
(1995-1999); Executive Director, SCLC/LA
(1993-1999); and Trustee, Anchor Pathway
Fund and SunAmerica Series Trust (since
August 2000).
---------------------------------------- ------------------------------ --------------------------------------------
James K. Hunt, *48 Trustee, Chairman and Executive Vice President, SunAmerica
President Investments, Inc. (1993 - Present);
President, SunAmerica Corporate Finance,
(since January 1994); Trustee, Chairman
and President, SunAmerica Series Trust
(since 1994).
---------------------------------------- ------------------------------ --------------------------------------------
B-49
<PAGE>
<CAPTION>
---------------------------------------- ------------------------------ --------------------------------------------
Principal Occupations
Name, Age and Address Position with the Trust During Past Five Years
--------------------- ----------------------- ----------------------
---------------------------------------- ------------------------------ --------------------------------------------
<S> <C> <C>
Monica C. Lozano, 43 Trustee Associate Publisher, LA OPINION (newspaper
3257 Purdue Avenue publishing concern) (since 1995);
Los Angeles, CA 90066 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.
---------------------------------------- ------------------------------ --------------------------------------------
Mallary Reznik, 32 Secretary Secretary, SunAmerica Series Trust and
Anchor Pathway Fund (since May 2000);
Associate Counsel, SunAmerica Inc. (since
January 1998); Staff Attorney,
Transamerica Life Companies (November 1995
to January 1998).
---------------------------------------- ------------------------------ --------------------------------------------
Peter C. Sutton, 35 Vice President, Treasurer Senior Vice President, SunAmerica (since
The SunAmerica Center and Controller April 1997); Treasurer, SunAmerica Mutual
733 Third Avenue Funds (since February 1996), Anchor Series
New York, NY 10017-3204 Trust and Style Select Series, Inc. (since
1996); SunAmerica Strategic Investment
Series, Inc. (since December 1998); Vice
President (since 1994) and Treasurer and
Controller, SunAmerica Series Trust and
Anchor Pathway Fund (since February 2000);
Vice President and Assistant Treasurer,
Brazos Mutual Funds (since May 1999);
formerly, Vice President, SunAmerica
(1994-1997); Controller, SunAmerica Mutual
Funds and Anchor Series Trust (March 1993
to February 1996); Assistant Controller,
SunAmerica Mutual Funds and Anchor Series
Trust (1990-1993); joined SunAmerica in
1990.
---------------------------------------- ------------------------------ --------------------------------------------
B-50
<PAGE>
<CAPTION>
---------------------------------------- ------------------------------ --------------------------------------------
Principal Occupations
Name, Age and Address Position with the Trust During Past Five Years
--------------------- ----------------------- ----------------------
---------------------------------------- ------------------------------ --------------------------------------------
<S> <C> <C>
Robert M. Zakem, 42 Vice President and Assistant Vice President and Assistant Secretary,
The SunAmerica Center Secretary SunAmerica Series Trust (since April 1993)
733 Third Avenue and Anchor Pathway Fund (since 1993);
New York, New York 10017-3204 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 September 1, 2000 the officers and Trustees as a group
owned an aggregate of less than 1% of the outstanding shares of each class 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-51
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
---------------------------------- ------------------------ --------------------------- ----------------------------
PENSION OR RETIREMENT TOTAL COMPENSATION FROM
AGGREGATE COMPENSATION BENEFITS ACCRUED AS PART REGISTRANT AND FUND
TRUSTEE FROM REGISTRANT OF FUND EXPENSES COMPLEX PAID TO TRUSTEES*
---------------------------------- ------------------------ --------------------------- ----------------------------
<S> <C> <C> <C>
Genethia Hayes** - - -
---------------------------------- ------------------------ --------------------------- ----------------------------
Monica C. Lozano $2,000 - $24,000
---------------------------------- ------------------------ --------------------------- ----------------------------
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. Hayes became a Trustee as of August 22, 2000.
*** Mr. Wardlaw served as Trustee until June 30, 2000.
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. AIG Capital Management Corp., an
indirect wholly-owned subsidiary of AIG Global Investment Group, Inc., serves as
investment adviser to The AIG Money Market Fund, a separate series of The
Advisors' Inner Circle Fund, a registered investment company. In addition, AIG
Global Investment Corp., an AIG Global group company, serves as the
sub-investment adviser to an unaffiliated registered investment company. AIG
companies do not otherwise provide investment advice to any registered
investment companies.
B-52
<PAGE>
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.
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.
B-53
<PAGE>
As compensation for its services, the Adviser receives from
the Trust a fee, accrued daily and payable monthly, based on the net assets of
each Portfolio at the following annual rates:
<TABLE>
<CAPTION>
------------------------------------------------------------- ------------------------------------------------------
PORTFOLIO ADVISORY FEE (AS A PERCENTAGE OF ASSETS)
------------------------------------------------------------- ------------------------------------------------------
<S> <C>
Multi-Managed Growth Portfolio 0.89%
------------------------------------------------------------- ------------------------------------------------------
Multi-Managed Moderate Growth Portfolio 0.85%
------------------------------------------------------------- ------------------------------------------------------
Multi-Managed Income/Equity Portfolio 0.81%
------------------------------------------------------------- ------------------------------------------------------
Multi-Managed Income Portfolio 0.77%
------------------------------------------------------------- ------------------------------------------------------
Asset Allocation: Diversified Growth Portfolio 0.85%
------------------------------------------------------------- ------------------------------------------------------
Stock Portfolio 0.85%
------------------------------------------------------------- ------------------------- ----------------------------
Large Cap Growth Portfolio First $250 million 0.80%
------------------------- ----------------------------
Next $250 million 0.75%
------------------------- ----------------------------
Over $500 million 0.70%
------------------------------------------------------------- ------------------------- ----------------------------
Large Cap Composite Portfolio First $250 million 0.80%
------------------------- ----------------------------
Next $250 million 0.75%
------------------------- ----------------------------
Over $500 million 0.70%
------------------------------------------------------------- ------------------------- ----------------------------
Large Cap Value Portfolio First $250 million 0.80%
------------------------- ----------------------------
Next $250 million 0.75%
------------------------- ----------------------------
Over $500 million 0.70%
------------------------------------------------------------- ------------------------- ----------------------------
Mid Cap Growth Portfolio First $250 million 0.85%
------------------------- ----------------------------
Next $250 million 0.80%
------------------------- ----------------------------
Over $500 million 0.75%
------------------------------------------------------------- ------------------------- ----------------------------
Mid Cap Value Portfolio First $250 million 0.85%
------------------------- ----------------------------
Next $250 million 0.80%
------------------------- ----------------------------
Over $500 million 0.75%
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------- ------------------------------------------------------
PORTFOLIO ADVISORY FEE (AS A PERCENTAGE OF ASSETS)
------------------------------------------------------------- ------------------------------------------------------
<S> <C>
------------------------------------------------------------- ------------------------- ----------------------------
Small Cap Portfolio First $250 million 0.85%
------------------------- ----------------------------
Next $250 million 0.80%
------------------------- ----------------------------
Over $500 million 0.75%
------------------------------------------------------------- ------------------------------------------------------
International Equity Portfolio 1.00%
------------------------------------------------------------- ------------------------- ----------------------------
Diversified Fixed Income Portfolio First $200 million 0.70%
------------------------- ----------------------------
Next $200 million 0.65%
------------------------- ----------------------------
Over $400 million 0.60%
------------------------------------------------------------- ------------------------- ----------------------------
Cash Management Portfolio First $100 million 0.55%
------------------------- ----------------------------
Next $200 million 0.50%
------------------------- ----------------------------
Over $300 million 0.45%
------------------------------------------------------------- ------------------------------------------------------
Focus Growth Portfolio 1.00%
------------------------------------------------------------- ------------------------------------------------------
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
------------------------------------------------------ -------------------- ------------------- --------------------
PORTFOLIO 2000 1999 1998*
------------------------------------------------------ -------------------- ------------------- --------------------
<S> <C> <C> <C>
Multi-Managed Growth Portfolio $737,883 $463,084 $137,424
------------------------------------------------------ -------------------- ------------------- --------------------
Multi-Managed Moderate Growth Portfolio $749,965 $474,482 $135,378
------------------------------------------------------ -------------------- ------------------- --------------------
Multi-Managed Income/Equity Portfolio $557,436 $368,615 $101,740
------------------------------------------------------ -------------------- ------------------- --------------------
Multi-Managed Income Portfolio $405,602 $256,218 $76,624
------------------------------------------------------ -------------------- ------------------- --------------------
Asset Allocation: Diversified Growth Portfolio $1,183,926 $686,471 $208,284
------------------------------------------------------ -------------------- ------------------- --------------------
</TABLE>
B-55
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------ -------------------- ------------------- --------------------
PORTFOLIO 2000 1999 1998*
------------------------------------------------------ -------------------- ------------------- --------------------
<S> <C> <C> <C>
Stock Portfolio $932,899 $577,953 $178,227
------------------------------------------------------ -------------------- ------------------- --------------------
Large Cap Growth Portfolio $168,718 $15,604+ --
------------------------------------------------------ -------------------- ------------------- --------------------
Large Cap Composite Portfolio $114,627 $12,969+ --
------------------------------------------------------ -------------------- ------------------- --------------------
Large Cap Value Portfolio $127,574 $15,063+ --
------------------------------------------------------ -------------------- ------------------- --------------------
Mid Cap Growth Portfolio $165,289 $15,925+ -
------------------------------------------------------ -------------------- ------------------- --------------------
Mid Cap Value Portfolio $129,830 $15,724+ --
------------------------------------------------------ -------------------- ------------------- --------------------
Small Cap Portfolio $133,169 $12,982+ --
------------------------------------------------------ -------------------- ------------------- --------------------
International Equity Portfolio $167,310 $18,659+ --
------------------------------------------------------ -------------------- ------------------- --------------------
Diversified Fixed Income Portfolio $112,280 $14,922+ --
------------------------------------------------------ -------------------- ------------------- --------------------
Cash Management Portfolio $12,907 $1,571+ --
------------------------------------------------------ -------------------- ------------------- --------------------
</TABLE>
* For the period April 15, 1997 (commencement of operations) through March 31,
1998.
+ For the period February 8, 1999 (commencement of operations) through March
31, 1999.
SunAmerica has voluntarily agreed to waive fees or reimburse
expenses, if necessary, to keep annual operating expenses at or below the
following percentages of each of the Class A shares 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%. SunAmerica also may voluntarily waive or
reimburse additional amounts to increase the investment return to a Portfolio's
investors. SunAmerica may terminate all such waivers and/or reimbursements at
any time. Further, any waivers or reimbursements made by SunAmerica with respect
to a Portfolio are subject to recoupment from that Portfolio within the
following two years, provided that the Portfolio is able to effect such payment
to SunAmerica and remain in compliance with the foregoing expense limitations.
For the fiscal year ended March 31, 2000, SunAmerica
voluntarily waived fees or reimbursed expenses for Class A shares, which are not
included as part of the advisory fee table as follows: Multi-Managed Income
Portfolio - $10,468; Large Cap Growth Portfolio - $42,322; Large Cap Composite
Portfolio - $53,940; Large Cap Value Portfolio - $46,787; Mid Cap Growth
Portfolio - $38,651; Mid Cap Value Portfolio - $49,262; Small Cap Portfolio -
$47,108; International Equity Portfolio - $102,616; Diversified Fixed Income
Portfolio - $49,582; Cash Management Portfolio - $49,192. Certain Portfolios had
recoupments for Class A shares 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: Multi-Managed Income/Equity Portfolio - $12,117, Multi-Managed
Income Portfolio - $10,100 and Asset Allocation: Diversified Growth Portfolio -
$41,677.
B-56
<PAGE>
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, Aggressive
Growth and the 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 SEC that permits SunAmerica, subject to
certain conditions, to enter into agreements relating to the Portfolios with
Managers 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 Managers for new or
existing Portfolios, 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)
-----------------------------------------------------------------
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)
-------------------------------------------------- -----------------------------------------------------------------
</TABLE>
B-57
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------- -----------------------------------------------------------------
PORTFOLIO MANAGEMENT ALLOCATED
PORTFOLIO AMONG THE FOLLOWING MANAGERS
-------------------------------------------------- -----------------------------------------------------------------
<S> <C>
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 INCOME PORTFOLIO PUTNAM
-------------------------------------------------- -----------------------------------------------------------------
STOCK PORTFOLIO T. ROWE PRICE
-------------------------------------------------- -----------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO BANKERS TRUST
GSAM
JANUS
-------------------------------------------------- -----------------------------------------------------------------
LARGE CAP COMPOSITE PORTFOLIO BANKERS TRUST
SUNAMERICA
T. ROWE PRICE
-------------------------------------------------- -----------------------------------------------------------------
LARGE CAP VALUE PORTFOLIO BANKERS TRUST
T. ROWE PRICE
WMC
-------------------------------------------------- -----------------------------------------------------------------
MID CAP GROWTH PORTFOLIO BANKERS TRUST
T. ROWE PRICE
WMC
-------------------------------------------------- -----------------------------------------------------------------
MID CAP VALUE PORTFOLIO BANKERS TRUST
GSAM
LORD ABBETT
-------------------------------------------------- -----------------------------------------------------------------
SMALL CAP PORTFOLIO BANKERS TRUST
LORD ABBETT
SUNAMERICA
-------------------------------------------------- -----------------------------------------------------------------
</TABLE>
B-58
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------- -----------------------------------------------------------------
PORTFOLIO MANAGEMENT ALLOCATED
PORTFOLIO AMONG THE FOLLOWING MANAGERS
-------------------------------------------------- -----------------------------------------------------------------
<S> <C>
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 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. Goldman Sachs Group, Inc., a publicly traded
company controls GSAM and GSAM International. 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 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. Janus is owned in part by Stilwell
Financial, Inc. ("Stilwell"), which owns approximately 81.5% of the outstanding
voting stock of Janus. Stilwell is a publicly traded holding company with
principal operations in the financial asset management business. Thomas F.
Marsico ownes 50% of Marsico's voting stock and Bank of America owns 50% of
Marsico's voting stock. Marsch & McLennan Companies, Inc., a publicly traded
company, owns all of the voting stock of Putnam's parent, Putnam Investments,
Inc. T. Rowe Price is a publicly traded company. The following persons are
managing partners of WMC: Laurie A. Gabriel, Duncan M. McFarland and John R.
Ryan.
SunAmerica will initially allocate the assets of each
Multi-Managed Seasons Select Portfolio and Seasons Focused Portfolio among the
Managers 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
B-59
<PAGE>
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 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 Manager to the Seasons Portfolios a
monthly fee with respect to each Portfolio for which such Manager performs
services, computed on average daily net assets. SunAmerica has received an
exemptive order that, among other things, permits the Trust to disclose to
shareholders the Managers' fees only in the aggregate for each Portfolio. The
aggregate annual rates, as a percentage of daily net assets, of the fees payable
by SunAmerica to the Manager for each Portfolio may vary according to the level
of assets of each Portfolio. For the fiscal year ended March 31, 2000,
SunAmerica paid fees to the other Managers equal to the following aggregate
annual rates, expressed as a percentage of the assets of each Portfolio:
Multi-Managed Growth Portfolio, 0.29%; Multi-Managed Moderate Growth Portfolio,
0.25%; Multi-Managed Income/Equity Portfolio, 0.23%; Multi-Managed Income
Portfolio, 0.21%; Asset Allocation: Diversified Growth Portfolio, 0.55%; Stock
Portfolio, 0.44%; Large Cap Growth Portfolio, 0.42%; Large Cap Composite
Portfolio, 0.17%; Large Cap Value Portfolio, 0.33%; Mid Cap Growth Portfolio,
0.33%; Mid Cap Value Portfolio, 0.36%; Small Cap Portfolio, 0.17%; International
Equity Portfolio, 0.49%; and Diversified Fixed Income Portfolio, 0.11%.
B-60
<PAGE>
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 $237,582
-------------------------------------------------------------- ----------------- ----------------- -----------------
Multi-Managed Moderate Growth Portfolio $40,269 $131,522 $217,771
-------------------------------------------------------------- ----------------- ----------------- -----------------
Multi-Managed Income/Equity Portfolio $29,105 $98,717 $152,086
-------------------------------------------------------------- ----------------- ----------------- -----------------
Multi-Managed Income Portfolio $21,659 $72,430 $109,104
-------------------------------------------------------------- ----------------- ----------------- -----------------
Asset Allocation: Diversified Growth Portfolio $134,772 $686,471 $725,028
-------------------------------------------------------------- ----------------- ----------------- -----------------
Stock Portfolio $104,733 $567,628 $479,011
-------------------------------------------------------------- ----------------- ----------------- -----------------
Large Cap Growth Portfolio -- $7,293+ $87,813
-------------------------------------------------------------- ----------------- ----------------- -----------------
Large Cap Composite Portfolio -- $2,583+ $24,308
-------------------------------------------------------------- ----------------- ----------------- -----------------
Large Cap Value Portfolio -- $6,078+ $52,741
-------------------------------------------------------------- ----------------- ----------------- -----------------
Mid Cap Growth Portfolio -- $5,941+ $63,307
-------------------------------------------------------------- ----------------- ----------------- -----------------
Mid Cap Value Portfolio -- $6,395+ $55,687
-------------------------------------------------------------- ----------------- ----------------- -----------------
Small Cap Portfolio -- $2,556+ $27,066
-------------------------------------------------------------- ----------------- ----------------- -----------------
International Equity Portfolio -- $8,659+ $82,679
-------------------------------------------------------------- ----------------- ----------------- -----------------
Diversified Fixed Income Portfolio -- $2,449+ $18,339
-------------------------------------------------------------- ----------------- ----------------- -----------------
</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
B-61
<PAGE>
agreement has been approved by the Trust in accordance with the 1940 Act, or
after six (6) months' written notice, whichever is earlier; provided,
further, that each may terminate its respective Subadvisory Agreement on
sixty (60) days' written notice in the event of a breach of such agreement by
SunAmerica. Moreover, SunAmerica has received an exemptive order from the SEC
that permits SunAmerica, subject to certain conditions, to enter into
agreements relating to the Trust with Managers 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 Managers for new or existing Trusts,
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.
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.
RULE 12b-1 PLAN
The Board of Trustees has adopted a Rule 12b-1 Plan for Class
B shares (the "Class B Plan") pursuant to Rule 12b-1 under the 1940 Act. There
is no Rule 12b-1 Plan in effect for Class A shares. Reference is made to
"Account Information - Service Fees" in the Prospectus for certain information
with respect to the Class B Plan. The Class B Plan provides for service fees
payable at the annual rate of 0.15% of the average daily net assets of such
Class B shares. The service fees will be used to reimburse Anchor National for
expenditures made to financial intermediaries for providing service to contract
holders of the Seasons Select II Variable Annuity Contract who are the indirect
beneficial owners of the Portfolios' Class B shares. It is possible that in any
given year, the amount paid to certain financial intermediaries for such
services could exceed the financial intermediaries' costs as described above.
B-62
<PAGE>
Continuance of the Class B Plan with respect to each Portfolio
is subject to annual approval by vote of the Trustees, including a majority of
the Trustees who are not interested persons of the Trust (collectively, the
"Disinterested Trustees") who have no direct or indirect financial interest in
the operation of the Class B Plan or in any agreements related to the Class B
Plan (the "Independent Trustees"). The Class B Plan may not be amended to
increase materially the amount authorized to be spent thereunder with respect to
Class B shares of a Portfolio, without approval of the shareholders of the Class
B shares of the Portfolio. In addition, all material amendments to the Class B
Plan must be approved by the Trustees in the manner described above. The Class B
Plan may be terminated at any time with respect to a Portfolio without payment
of any penalty by vote of a majority of the Independent Trustees or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
Class B shares of the Portfolio. So long as the Class B Plan is in effect, the
election and nomination of the Independent Trustees of the Trust shall be
committed to the discretion of the Independent Trustees. In the Trustees'
quarterly review of the Class B Plan, they will consider the continued
appropriateness of, and the level of, compensation provided in the Class B Plan.
In their consideration of the Class B Plan with respect to a Portfolio, the
Trustees must consider all factors they deem relevant, including information as
to the benefits for the Portfolio for the shareholders of Class B of the
Portfolio.
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 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.
SHARES OF THE TRUST
The Trust consists of sixteen separate Portfolios, each of
which offers Class A and B shares. In addition, the Trustees may authorize the
creation of additional classes of shares in the future, which may have fee
structures different from those of existing classes and/or may be offered only
to certain qualified investors.
B-63
<PAGE>
Except as otherwise described herein, 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.
The classes of shares of a given Portfolio are identical in
all respects, except that (i) each class may bear differing amounts of certain
class-specific expenses; (ii) Class B shares are subject to service fees; and
(iii) Class B shares have voting rights on matters that pertain to the Rule
12b-1 Plan adopted with respect to Class B shares.
PRICE OF SHARES
The Trust is open for business on any day the New York Stock
Exchange ("NYSE") is open for regular trading. Shares are valued each day as of
the close of regular trading on the NYSE (generally 4:00 p.m., Eastern time).
Each Portfolio calculates the net asset value of each class of its shares by
dividing the total value of each class's net assets by the shares outstanding of
such class.
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
B-64
<PAGE>
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.
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.
B-65
<PAGE>
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 a Manager as a broker for any Portfolio. In order
for such broker-dealer to effect any portfolio transactions for a Portfolio, the
commissions, fees or other remuneration received by the broker-dealer must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. This standard would allow such broker-dealer to receive no more
than the remuneration 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-66
<PAGE>
2000 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
------------------------------------ ------------------ ------------------- -------------------- -------------------
PERCENTAGE OF PERCENTAGE OF
COMMISSIONS PAID AMOUNT OF
AGGREGATE AMOUNT PAID TO TO TRANSACTIONS
BROKERAGE AFFILIATED AFFILIATED INVOLVING PAYMENT
PORTFOLIO COMMISSIONS BROKER-DEALERS* BROKER-DEALERS* OF COMMISSIONS
------------------------------------ ------------------ ------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Multi-Managed Growth $82,621 - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
Multi-Managed Moderate Growth $71,864 - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
Multi-Managed Income/Equity $26,399 - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
Multi-Managed Income $12,603 - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
Asset Allocation: Diversified $197,508 - - -
Growth
------------------------------------ ------------------ ------------------- -------------------- -------------------
Stock $163,860 - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
Large Cap Growth $19,574 $2,449 12.51% 9.43%
------------------------------------ ------------------ ------------------- -------------------- -------------------
Large Cap Composite $11,838 - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
Large Cap Value $14,932 $24 0.16% 0.10%
------------------------------------ ------------------ ------------------- -------------------- -------------------
Mid Cap Growth $13,260 $30 0.23% 0.06%
------------------------------------ ------------------ ------------------- -------------------- -------------------
Mid Cap Value $51,272 $3,115 6.08% 2.27%
------------------------------------ ------------------ ------------------- -------------------- -------------------
Small Cap $15,907 $382 2.40% 0.05%
------------------------------------ ------------------ ------------------- -------------------- -------------------
International Equity $40,640 $1,666 4.10% 3.22%
------------------------------------ ------------------ ------------------- -------------------- -------------------
Diversified Fixed Income - - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
Cash Management - - - -
------------------------------------ ------------------ ------------------- -------------------- -------------------
</TABLE>
* The affiliated broker-dealers that effected transactions with the
indicated portfolios included: B.T. Alex Brown, Inc., Goldman Sachs,
Royal Alliance Associates, Inc. and Deutsche Bank AG.
B-67
<PAGE>
1999 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
-------------------------------------- ---------------- ------------------- --------------------- ------------------
PERCENTAGE OF
AMOUNT OF
PERCENTAGE OF TRANSACTIONS
AGGREGATE AMOUNT PAID TO COMMISSIONS PAID TO INVOLVING
BROKERAGE AFFILIATED AFFILIATED PAYMENT OF
PORTFOLIO COMMISSIONS BROKER-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 Growth $165,459 $28 0.02% 0.00%
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Stock $108,478 - - -
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Large Cap Growth+ $8,033 $49 0.61% 0.41%
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Large Cap Composite+ $7,037 $6 0.09% 0.13%
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Large Cap Value+ $7,626 $74 0.97% 1.76%
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Mid Cap Growth+ $8,035 $108 1.34% 1.09%
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Mid Cap Value+ $22,811 $262 1.15% 0.43%
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Small Cap+ $10,881 - - -
-------------------------------------- ---------------- ------------------- --------------------- ------------------
International Equity+ $17,560 - - -
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Diversified Fixed Income+ - - - -
-------------------------------------- ---------------- ------------------- --------------------- ------------------
Cash Management+ - - - -
-------------------------------------- ---------------- ------------------- --------------------- ------------------
</TABLE>
* The affiliated broker-dealers that effected transactions with
the indicated portfolios included: SunAmerica Securities, Inc., FSC
Securities Corp., BT Alex Brown, Inc., and Goldman Sachs.
+ For the period February 8, 1999 (commencement of operations) through
March 31, 1999.
B-68
<PAGE>
1998 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
---------------------------------------- ------------------ ----------------- -------------------- -----------------
PERCENTAGE OF
AMOUNT OF
PERCENTAGE OF TRANSACTIONS
AGGREGATE AMOUNT PAID TO COMMISSIONS PAID INVOLVING
BROKERAGE AFFILIATED TO AFFILIATED PAYMENT OF
PORTFOLIO COMMISSIONS BROKER-DEALERS* BROKER-DEALERS* COMMISSIONS
---------------------------------------- ------------------ ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Multi-Managed Growth $36,894 -- --
---------------------------------------- ------------------ ----------------- -------------------- -----------------
Multi-Managed Moderate Growth $31,159 -- --
---------------------------------------- ------------------ ----------------- -------------------- -----------------
Multi-Managed Income/Equity $12,098 -- --
---------------------------------------- ------------------ ----------------- -------------------- -----------------
Multi-Managed Income $ 5,374 -- --
---------------------------------------- ------------------ ----------------- -------------------- -----------------
Asset Allocation: Diversified Growth $84,108 $635 0.75%
---------------------------------------- ------------------ ----------------- -------------------- -----------------
Stock $44,763 -- -
---------------------------------------- ------------------ ----------------- -------------------- -----------------
</TABLE>
* The affiliated broker-dealers that effected transactions with the indicated
portfolios included: SunAmerica Securities Inc., FSC Securities Corp.,
B.T. Alex Brown Inc. and Goldman Sachs.
The policy of the Trust with respect to brokerage is reviewed
by the Board of Trustees from time-to-time. Because of the possibility of
further regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be modified.
A Manager and its respective affiliates may manage, or have
proprietary interests in, accounts with similar, dissimilar or the same
investment objective as one or more Portfolios of the Trust. Such account may or
may not be in competition with a Portfolio for investments. Investment decisions
for such accounts are based on criteria relevant to such accounts; portfolio
decisions and results of the Portfolio's investments may differ from those of
such other accounts. There is no obligation to make available for use in
managing the Portfolio any information or strategies used or developed in
managing such accounts. In addition, when two or more accounts seek to purchase
or sell the same assets, the assets actually purchased or sold may be allocated
among accounts on a good faith equitable basis at the discretion of the
account's adviser. In some cases, this system may adversely affect the price or
size of the position obtainable for a Portfolio.
If determined by a Manager to be beneficial to the interests
of the Trust, partners and/or employees of the Manager may serve on investment
advisory committees, which will consult with the Manager regarding investment
objectives and strategies for the Trust. In connection with serving on such a
committee, such persons may receive information regarding a Portfolio's proposed
investment activities that is not generally available to unaffiliated market
participants, and there will be no obligation on the part of such persons to
make available for use in managing the Portfolio any information or strategies
known to them or developed in connection with their other activities.
B-69
<PAGE>
It is possible that a Portfolio's holdings may include
securities of entities for which a Manager or its affiliate performs investment
banking services as well as securities of entities in which the Manager or its
affiliate makes a market. From time to time, such activities may limit a
Portfolio's flexibility in purchases and sales of securities. When a Manager or
its affiliate is engaged in an underwriting or other distribution of securities
of an entity, the Manager may be prohibited from purchasing or recommending the
purchase of certain securities of that entity for the Portfolio.
Because each Managed Component of a Multi-Managed Seasons
Portfolio and each separate portion of a Multi-Managed Seasons Select Portfolio
will be managed independently of each other, it is possible that the same
security may be purchased and sold on the same day by two separate Managed
Components or separate portion, resulting in higher brokerage commissions for
the Portfolio.
GENERAL INFORMATION
CUSTODIAN . State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the
Trust's custodian. In this capacity, State Street maintains the portfolio
securities held by the Trust, administers the purchase and sale of portfolio
securities, and performs certain other duties. State Street also serves as
transfer agent and dividend disbursing agent for the Trust.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as the Trust's independent accountants.
PricewaterhouseCoopers LLP performs an annual audit of the Trust's financial
statements and provides tax consulting, tax return preparation and accounting
services relating to filings with the SEC. The firm of Swidler Berlin Shereff
Friedman, LLP, The Chrysler Building, 405 Lexington Avenue, New York, NY
10174, has been selected to provide legal counsel to the Trust.
REPORTS TO SHAREHOLDERS. Persons having a beneficial interest
in the Trust are provided at least semi-annually with reports showing the
investments of the Portfolios, financial statements and other information.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY. Shareholders of a
Massachusetts business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Trust. The risk of a
shareholder incurring any financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides that
notice of the disclaimer must be given in each agreement, obligation or
instrument entered into or executed by the Trust or Trustees. The Declaration of
Trust provides for indemnification of any shareholder held personally liable for
the obligations of the Trust and also provides for the Trust to reimburse the
shareholder for all legal and other expenses reasonably incurred in connection
with any such claim or liability.
B-70
<PAGE>
Under the Declaration of Trust, the trustees or officers are
not liable for actions or failure to act; however, they are not protected from
liability by reason of their willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their office. The
Trust provides indemnification to its trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
REGISTRATION STATEMENT. A registration statement has been
filed with the SEC under the Securities Act and the 1940 Act. The Prospectus and
this Statement of Additional Information do not contain all information set
forth in the registration statement, its amendments and exhibits thereto, that
the Trust has filed with the SEC, Washington, D.C., to all of which reference is
hereby made.
FINANCIAL STATEMENTS
The Trust's audited financial statements are incorporated into
this Statement of Additional Information by reference to its 2000 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-71
<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. Incorporated herein by reference to Post-Effective Amendment
No. 8 to the Registrant's Registration Statement on Form N-1A (File
No. 333-08653) filed on June 30, 2000.
(d)(v) Subadvisory Agreement between SunAmerica and Jennison Associates
LLC. Incorporated herein by reference to Post-Effective Amendment
No. 8 to the Registrant's Registration Statement on Form N-1A (File
No. 333-08653) filed on June 30, 2000.
(d)(vi) Subadvisory Agreement between SunAmerica and Marsico Capital
Management, LLC. Incorporated herein by reference to Post-Effective
Amendment No. 8 to the Registrant's Registration Statement on Form
N-1A (File No. 333-08653) filed on June 30, 2000.
(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
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(l) Inapplicable.
(m) Form of 12b-1 Distribution Plan for Class B shares of Multi-Managed
Growth, Multi-Managed Moderate Growth, Multi-Managed Income/Equity,
Multi-Managed Income, Asset Allocation: Diversified Growth, Focus
Growth, Stock, Large Cap Growth, Large Cap Composite, Large Cap
Value, Mid Cap Growth, Mid Cap Value, Small Cap, International
Equity, Diversified Fixed Income and Cash Management Portfolios.
(n) 18f-3 Plan.
(p) Code of Ethics.
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 at 90 Hudson Street, Jersey City, NJ 07302.
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 the Post-Effective Amendment No. 10 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 28th day
of September, 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. 10 to 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 September 28, 2000
------------------- President
James K. Hunt (Principal Executive Officer)
------------------- Vice President, September 28, 2000
Peter C. Sutton Treasurer and Controller
(Principal Financial
and Accounting Officer)
* Trustee September 28, 2000
-------------------
Allan L. Sher
* Trustee September 28, 2000
-------------------
Genethia H. Hayes
* Trustee September 28, 2000
-------------------
Monica C. Lozano
</TABLE>
*By: /s/ Jeffrey H. Warnock
-----------------------------
Name: Jeffrey H. Warnock
Title: Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
(j) Consent of Independent Accountants.
(m) Rule 12b-1 Plan.
(n) Rule 18f-3 Plan.
(p) Code of Ethics.
</TABLE>
