<PAGE> 1
As filed with the Securities and Exchange Commission on December 28, 1995
File Nos. 2-86188; 811-3836
===============================================================================
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. 24 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 24 [X]
(Check appropriate box or boxes)
ANCHOR SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(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
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Name and Address of Agent for Service)
Copies to:
Susan L. Harris, Esq.
SunAmerica Inc.
1 SunAmerica Center, Century City
Los Angeles, CA 90067-6022
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
<PAGE> 2
[ ] 60 days after filing pursuant to paragraph (a)
[X] on February 29, 1996 pursuant to paragraph (a) of Rule 485
---------------------------------------
The Registrant has elected to register an indefinite number of
shares of beneficial interest, par value $.01 per share, under
the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Rule 24f-2
Notice for the Registrant's fiscal year ended December 31, 1994
was filed on February 24, 1995.
===============================================================================
<PAGE> 3
ANCHOR SERIES TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number
in Form N-1A Caption
- ------------ -------
<S> <C> <C>
PART A - PROSPECTUS
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis - Fee Table . . . . . . . . . . . . . . . . . . . . . . . . *
3. Condensed Financial . . . . . . . . . . . . . . . . . . . . . . . . Financial Highlights
Information
4. General Description of . . . . . . . . . . . . . . . . . . . . . . . The Trust, Investment
Registrant Objectives and Policies; Investment
Restrictions; Special Considerations; and
Description of the Trust
5. Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . Management of the Trust
5A. Management's Discussion of . . . . . . . . . . . . . . . . . . . . . Cover Page
Fund Performance
6. Capital Stock and Other . . . . . . . . . . . . . . . . . . . . . . The Trust; Description
Securities of the Trust
7. Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . The Trust; Net Asset
Being Offered Value; Distribution and Redemption of Shares;
Inquiries
8. Redemption or Repurchase . . . . . . . . . . . . . . . . . . . . . . The Trust; Distribution and Redemption of
Shares; Inquiries
9. Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . . . *
PART B - STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
12. General Information and . . . . . . . . . . . . . . . . . . . . . . The Trust; General
History Information; Ownership of Shares
13. Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . Investment Objectives and Policies
14. Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . SunAmerica Asset Management Corp.; Officers
and Trustees of Trust
15. Control Persons and . . . . . . . . . . . . . . . . . . . . . . . . Ownership of Shares
Principal Holders of Securities
16. Investment Advisory and . . . . . . . . . . . . . . . . . . . . . . SunAmerica Asset Management Corp. and
Other Services Wellington Management Corp. and
Wellington Management Company; Custodian
17. Brokerage Allocation . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions and Brokerage
18. Capital Stock and Other . . . . . . . . . . . . . . . . . . . . . . General Information
Securities
19. Purchase, Redemption and . . . . . . . . . . . . . . . . . . . . . . Net Asset Value
Pricing of Securities Being Offered
20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends, Distributions and Taxes
21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
22. Calculation of Yield Quotations . . . . . . . . . . . . . . . . . . Net Asset Value
of Money Market Funds
23. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
____________
* Omitted from the Prospectus or Statement of Additional Information because
the item is not applicable.
<PAGE> 4
PROSPECTUS -- FEBRUARY , 1996
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
- --------------------------------------------------------------------------------
P.O. BOX 54299
LOS ANGELES, CALIFORNIA, 90054-0299
(800) 445-7862
Anchor Series Trust (the "Trust") is an open-end diversified management
investment company. The Trust includes twelve Portfolios, each of which has its
own investment objective and policies.
Shares of the Trust are issued and redeemed only in connection with
investments in and payments under variable annuity contracts and variable life
insurance policies. The contracts involve fees and expenses not described in
this Prospectus and may also involve certain restrictions or limitations on the
allocation of purchase payments or contract values to one or more series of the
Trust. Certain Portfolios of the Trust may not be available in connection with a
particular contract. See the applicable contract prospectus for information
regarding contract fees and expenses and any restrictions or limitations.
The twelve Portfolios of the Trust are as follows:
The FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation
through investment primarily in equity securities issued by foreign companies.
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital
appreciation.This Portfolio invests in growth equity securities which are widely
diversified by industry and company and may engage in transactions involving
stock index futures and options thereon as a hedge against changes in market
conditions.
The GROWTH PORTFOLIO seeks capital appreciation primarily through
investments in growth equity securities. This Portfolio may engage in
transactions involving stock index futures and options thereon as a hedge
against changes in market conditions.
The NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S.
rate of inflation as represented by the Consumer Price Index. This Portfolio
invests primarily in equity securities of U.S. or foreign companies which are
expected to provide favorable returns in periods of rising inflation.
The GROWTH AND INCOME PORTFOLIO (formerly the Convertible Securities
Portfolio) seeks to provide high current income and long-term capital
appreciation by investing primarily in securities that provide the potential for
growth and offer income, such as dividend-paying stocks and securities
convertible into common stock.
The STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return by investing in equity securities, aggressive growth equity securities,
international equity securities, investment grade bonds, high-yield, high-risk
bonds and money market instruments.
The list of Portfolios continues on the next page.
As a result of the market risk inherent in any investment, there is no
assurance that the investment objective of any of the Portfolios will be
realized. INVESTMENTS IN A PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT OR ANY OTHER ENTITY OR PERSON.
This Prospectus sets forth concisely the information that a prospective
investor ought to know before investing in the Trust. Please read it carefully
and retain it for future reference. Further information about the performance of
the Portfolios is contained in the Trust's Annual Report to Shareholders. A
Statement of Additional Information dated February , 1996 has been filed with
the Securities and Exchange Commission. The Annual Report to Shareholders and
the Statement of Additional Information may be obtained upon request and without
charge by writing to the Trust at the above address or by calling (800)
445-7862.
----------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------
<PAGE> 5
The MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk by investing in equity securities,
convertible securities, investment grade fixed income securities and money
market securities.
The HIGH YIELD PORTFOLIO seeks to produce high current income. A secondary
investment objective is capital appreciation. The Portfolio invests in
high-yielding, high-risk, income producing corporate bonds. IN ADDITION TO OTHER
RISKS, THESE HIGH-YIELD, HIGH-RISK BONDS TYPICALLY ARE SUBJECT TO GREATER MARKET
FLUCTUATIONS AND RISK LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER
THAN ARE INVESTMENTS IN LOWER-YIELDING, HIGHER-RATED BONDS. SEE PAGE 13 FOR MORE
INFORMATION.
The TARGET '98 PORTFOLIO seeks a predictable compounded investment return
for the specified time period, consistent with preservation of capital by
investing primarily in zero coupon securities and current interest-bearing,
investment grade debt obligations which are issued by the U.S. Government, its
agencies and instrumentalities, and both domestic and foreign corporations.
The FIXED INCOME PORTFOLIO seeks a high level of current income consistent
with preservation of capital and invests primarily in investment grade, fixed
income securities.
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This Portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its agencies
or instrumentalities and in corporate debt securities rated Aa or better by
Moody's Investors Service, Inc. or AA or better by Standard & Poor's
Corporation.
The MONEY MARKET PORTFOLIO seeks current income consistent with stability
of principal through investment in a diversified portfolio of money market
instruments maturing in 397 days or less. THE MONEY MARKET PORTFOLIO SEEKS TO
MAINTAIN A STABLE PRICE PER SHARE, BUT THERE IS NO ASSURANCE THAT THIS PORTFOLIO
WILL CONTINUE TO MAINTAIN SUCH STABILITY.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
FINANCIAL HIGHLIGHTS.................................................................. 2
THE TRUST............................................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................................................... 5
Equity Portfolios................................................................ 6
Foreign Securities Portfolio................................................ 6
Capital Appreciation Portfolio.............................................. 7
Growth Portfolio............................................................ 8
Natural Resources Portfolio................................................. 9
Growth and Income Portfolio................................................. 11
Managed Portfolios............................................................... 12
Strategic Multi-Asset Portfolio............................................. 12
Multi-Asset Portfolio....................................................... 12
Income Portfolios................................................................ 13
High Yield Portfolio........................................................ 13
Target '98 Portfolio........................................................ 15
Fixed Income Portfolio...................................................... 17
Government and Quality Bond Portfolio....................................... 18
Money Market Portfolio........................................................... 19
Repurchase Agreements............................................................ 20
Illiquid Securities.............................................................. 20
Hedging and Income Enhancement Strategies........................................ 21
INVESTMENT RESTRICTIONS............................................................... 23
SPECIAL CONSIDERATIONS................................................................ 23
MANAGEMENT OF THE TRUST............................................................... 24
The Trustees..................................................................... 24
SAAMCo........................................................................... 24
Wellington Management Company.................................................... 25
Portfolio Management............................................................. 26
Custodian, Transfer and Dividend Paying Agent.................................... 26
Expenses of the Trust............................................................ 26
PORTFOLIO TRANSACTIONS................................................................ 27
NET ASSET VALUE....................................................................... 27
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................................... 28
DESCRIPTION OF THE TRUST.............................................................. 28
REPORTS, INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL.................................... 29
DISTRIBUTION AND REDEMPTION OF SHARES; INQUIRIES...................................... 29
APPENDIX A
</TABLE>
<PAGE> 7
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS*
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
SELECTED PER SHARE DATA AND RATIOS
The following selected per share data and ratios has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report for the 5
years in the period ended December 31, 1994 is included in the Trust's Annual
Report. This information should be read in conjunction with the financial
statements and notes thereto which are contained in the Statement of Additional
Information.
<TABLE>
<CAPTION>
DIVIDENDS
NET REALIZED DECLARED DIVIDENDS NET
NET ASSET NET & UNREALIZED FROM NET FROM NET ASSET
VALUE INVEST- GAIN (LOSS) TOTAL FROM INVEST- REALIZED VALUE
YEAR BEGINNING MENT ON INVESTMENT MENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities Portfolio
3/23/87-
12/31/87 $10.00 $ 0.02 + $ (1.22) $ (1.20) $(0.02) $-- $ 8.78 (13.1)%
12/31/88 8.78 0.11 + 1.82 1.93 (0.08) -- 10.63 22.0
12/31/89 10.63 0.13 2.96 3.09 (0.02) -- 13.70 29.1
12/31/90 13.70 0.18 (1.88) (1.70) (0.30) (1.45) 10.25 (12.8)
12/31/91 10.25 0.07 (0.09) (0.02) (0.12) -- 10.11 (0.3)
12/31/92 10.11 0.13 (1.43) (1.30) (0.06) (0.28) 8.47 (13.1)
12/31/93 8.47 0.05 2.50 2.55 (0.09) -- 10.93 30.2
12/31/94 10.93 0.11 (0.46) (0.35) (0.03) -- 10.55 (3.2)
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3/23/87-
12/31/87 $ 12,284 1.8%#+ 0.3% 85.0%
12/31/88 16,785 1.7+ 1.1+ 79.5
12/31/89 45,261 1.8 1.1 61.8
12/31/90 34,237 1.7 1.3 75.1
12/31/91 30,823 1.4 0.7 64.2
12/31/92 29,204 1.3 1.4 144.2
12/31/93 72,579 1.3 0.5 47.7
12/31/94 68,641 1.2 1.0 73.9
Capital Appreciation Portfolio
3/23/87-
12/31/87 10.00 0.03 + (1.69) (1.66) (0.04) (0.35) 7.95 (16.5)
12/31/88 7.95 0.09 1.64 1.73 (0.05) -- 9.63 21.1
12/31/89 9.63 0.18 2.23 2.41 (0.01) -- 12.03 25.0
12/31/90 12.03 0.13 (2.04) (1.91) (0.29) (0.02) 9.81 (16.2)
12/31/91 9.81 0.09 5.41 5.50 (0.01) (0.07) 15.23 56.1
12/31/92 15.23 0.01 3.70 3.71 (0.07) (1.12) 17.75 25.9
12/31/93 17.75 (0.03 ) 3.73 3.70 (0.01) (1.16) 20.28 21.1
12/31/94 20.28 (0.02 ) (0.71) (0.73) -- (2.04) 17.51 (3.8)
<CAPTION>
<S> <C> <C> <C> <C>
3/23/87-
12/31/87 7,849 1.5#+ 0.5#+ 115.0
12/31/88 19,976 1.1 1.0 30.3
12/31/89 35,951 1.0 1.6 30.9
12/31/90 27,568 1.0 1.2 37.2
12/31/91 45,976 1.0 0.7 72.9
12/31/92 83,414 0.9 0.1 92.9
12/31/93 182,515 0.9 (0.2) 111.2
12/31/94 229,544 0.8 (0.1) 64.0
Growth Portfolio
9/5/84-
6/30/85 10.00 0.28 1.60 1.88 -- -- 11.88 18.8
7/1/85-
12/31/85 11.88 0.15 1.18 1.33 (0.19) (0.01) 13.01 11.4
12/31/86 13.01 0.28 0.93 1.21 (0.18) (0.05) 13.99 9.3
12/31/87 13.99 0.25 (0.04) 0.21 (0.48) (1.27) 12.45 0.6
12/31/88 12.45 0.22 1.37 1.59 -- -- 14.04 12.8
12/31/89 14.04 0.31 3.91 4.22 (0.29) -- 17.97 30.1
12/31/90 17.97 0.27 (0.50) (0.23) (0.56) (1.72) 15.46 (1.6)
12/31/91 15.46 0.22 6.05 6.27 (0.12) (0.21) 21.40 40.8
12/31/92 21.40 0.09 0.99 1.08 (0.19) (0.62) 21.67 5.4
12/31/93 21.67 0.05 1.60 1.65 (0.08) (0.92) 22.32 7.8
12/31/94 22.32 0.05 (1.03) (0.98) (0.05) (3.11) 18.18 (4.7)
<CAPTION>
<S> <C> <C> <C> <C>
9/5/84-
6/30/85 11,046 1.0#+ 3.5# 83.4#
7/1/85-
12/31/85 30,235 0.9#+ 2.4# 88.5#
12/31/86 211,211 0.9 2.1 33.7
12/31/87 210,736 0.9 1.6 81.6
12/31/88 195,105 1.0 1.6 37.6
12/31/89 171,593 1.0 1.8 26.9
12/31/90 151,527 0.9 1.6 22.2
12/31/91 231,857 0.9 1.2 36.9
12/31/92 279,291 0.9 0.5 37.9
12/31/93 311,050 0.9 0.2 66.3
12/31/94 246,149 0.8 0.2 74.8
Natural Resources Portfolio
12/31/88 10.00 0.33 + 0.84 1.17 (0.17) -- 11.00 11.7
12/31/89 11.00 0.39 1.63 2.02 (0.12) -- 12.90 18.3
12/31/90 12.90 0.33 (2.10) (1.77) (0.61) (0.80) 9.72 (15.0)
12/31/91 9.72 0.26 0.21 0.47 (0.13) -- 10.06 4.9
12/31/92 10.06 0.21 0.05 0.26 (0.39) -- 9.93 2.5
12/31/93 9.93 0.15 3.42 3.57 (0.17) -- 13.33 36.2
12/31/94 13.33 0.23 (0.09) 0.14 (0.09) (0.09) 13.29 1.0
<CAPTION>
<S> <C> <C> <C> <C>
12/31/88 12,324 1.6+ 3.2+ 20.0
12/31/89 16,971 1.5 3.3 38.2
12/31/90 14,954 1.4 3.0 26.6
12/31/91 9,407 1.2 2.5 2.6
12/31/92 8,796 1.3 2.1 18.7
12/31/93 18,255 1.1 1.3 34.5
12/31/94 21,230 1.0 1.7 36.0
# Annualized.
+ Net of expense reimbursement.
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
</TABLE>
2
<PAGE> 8
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS* (CONTINUED)
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
SELECTED PER SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
DIVIDENDS
NET REALIZED DECLARED DIVIDENDS NET
NET ASSET NET & UNREALIZED FROM NET FROM NET ASSET
VALUE INVEST- GAIN (LOSS) TOTAL FROM INVEST- REALIZED VALUE
YEAR BEGINNING MENT ON INVESTMENT MENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Portfolio
1/23/87-
12/31/87 $10.00 $ 0.42 + $ (1.56) $ (1.14) $(0.42) $-- $ 8.44 (12.6)%
12/31/88 8.44 0.57 0.65 1.22 (0.55) -- 9.11 14.5
12/31/89 9.11 0.57 0.77 1.34 -- -- 10.45 14.7
12/31/90 10.45 0.63 (0.98) (0.35) (1.34) -- 8.76 (3.8)
12/31/91 8.76 0.64 1.70 2.34 (0.12) -- 10.98 26.8
12/31/92 10.98 0.65 1.50 2.15 (0.64) -- 12.49 20.1
12/31/93 12.49 0.61 2.11 2.72 (0.55) (0.08) 14.58 22.0
12/31/94 14.58 0.66 (1.96) (1.30) (0.52) (1.20) 11.56 (9.7)
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1/23/87-
12/31/87 $ 14,577 1.2%# 5.6%# 81.3%
12/31/88 17,653 1.0 6.1 52.8
12/31/89 19,027 1.0 5.6 77.0
12/31/90 13,352 1.1 6.6 107.0
12/31/91 14,551 1.1 6.4 109.0
12/31/92 23,723 1.0 5.6 86.5
12/31/93 41,555 0.9 4.4 86.2
12/31/94 34,995 0.9 4.9 50.7
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Strategic Multi-Asset Portfolio
1/13/87-
12/31/87 10.00 0.25 (0.97) (0.72) (0.25) (0.03) 9.00 (7.8)
12/31/88 9.00 0.36 0.98 1.34 (0.28) -- 10.06 14.9
12/31/89 10.06 0.41 1.58 1.99 (0.05) -- 12.00 19.8
12/31/90 12.00 0.38 (1.26) (0.88) (0.83) (0.12) 10.17 (7.8)
12/31/91 10.17 0.26 2.20 2.46 -- -- 12.63 24.2
12/31/92 12.63 0.23 0.25 0.48 (0.34) (0.32) 12.45 3.9
12/31/93 12.45 0.21 1.68 1.89 (0.28) -- 14.06 15.3
12/31/94 14.06 0.24 (0.53) (0.29) (0.20) (2.28) 11.29 (2.6)
<CAPTION>
<S> <C> <C> <C> <C>
1/13/87-
12/31/87 65,066 1.5# 3.4# 68.9
12/31/88 83,479 1.4 3.7 37.4
12/31/89 108,434 1.4 3.7 36.6
12/31/90 87,329 1.4 3.4 28.0
12/31/91 88,585 1.3 2.3 42.0
12/31/92 79,621 1.3 1.8 57.5
12/31/93 76,466 1.3 1.2 73.9
12/31/94 65,357 1.3 1.8 63.7
Multi-Asset Portfolio
3/23/87-
12/31/87 10.00 0.33 (0.76) (0.43) (0.33) (0.05) 9.19 (4.9)
12/31/88 9.19 0.44 0.44 0.88 (0.42) -- 9.65 9.6
12/31/89 9.65 0.48 1.42 1.90 (0.01) -- 11.54 19.7
12/31/90 11.54 0.48 (0.30) 0.18 (1.03) -- 10.69 1.6
12/31/91 10.69 0.45 2.45 2.90 (0.06) -- 13.53 27.3
12/31/92 13.53 0.41 0.67 1.08 (0.47) (0.35) 13.79 8.2
12/31/93 13.79 0.36 0.63 0.99 (0.44) (0.46) 13.88 7.3
12/31/94 13.88 0.39 (0.60) (0.21) (0.47) (1.49) 11.71 (1.7)
<CAPTION>
<S> <C> <C> <C> <C>
3/23/87-
12/31/87 130,684 1.2# 4.5# 58.5
12/31/88 161,622 1.2 4.5 30.8
12/31/89 168,986 1.2 4.4 36.9
12/31/90 151,329 1.2 4.4 48.7
12/31/91 177,429 1.2 3.8 50.7
12/31/92 207,533 1.1 3.1 38.6
12/31/93 208,900 1.1 2.6 48.2
12/31/94 164,159 1.1 3.0 82.5
High Yield Portfolio
12/31/86 10.00 1.01 0.65 1.66 -- -- 11.66 5.1
12/31/87 11.66 1.15 (1.51) (0.36) (1.48) (0.02) 9.80 1.7
12/31/88 9.80 1.23 0.17 1.40 (1.18) -- 10.02 14.3
12/31/89 10.02 1.27 (1.53) (0.26) (0.07) -- 9.69 (2.8)
12/31/90 9.69 0.99 (1.85) (0.86) (2.87) -- 5.96 (10.8)
12/31/91 5.96 0.81 1.16 1.97 (0.05) -- 7.88 33.1
12/31/92 7.88 0.81 0.28 1.09 (0.58) -- 8.39 13.9
12/31/93 8.39 0.79 0.79 1.58 (0.54) -- 9.43 19.1
12/31/94 9.43 0.15 (0.56) (0.41) (1.15) -- 7.87 (4.5)
<CAPTION>
<S> <C> <C> <C> <C>
12/31/86 54,124 1.0 9.6 71.7
12/31/87 52,783 0.9 9.9 71.3
12/31/88 57,916 0.9 11.4 41.5
12/31/89 33,430 1.0 12.2 43.9
12/31/90 20,695 1.0 13.2 50.9
12/31/91 33,046 1.0 11.3 54.9
12/31/92 47,140 0.9 9.7 134.9
12/31/93 79,303 0.9 8.5 121.1
12/31/94 48,057 0.9 9.0 97.9
# Annualized.
+ Net of expense reimbursement.
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
</TABLE>
3
<PAGE> 9
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS* (CONTINUED)
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
SELECTED PER SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
DIVIDENDS
NET REALIZED DECLARED DIVIDENDS NET
NET ASSET NET & UNREALIZED FROM NET FROM NET ASSET
VALUE INVEST- GAIN (LOSS) TOTAL FROM INVEST- REALIZED VALUE
YEAR BEGINNING MENT ON INVESTMENT MENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Target '98 Portfolio
5/2/88-
12/31/88 $10.00 $ 0.49 + $ 0.23 $ 0.72 $(0.16) $-- $10.56 7.9%
12/31/89 10.56 0.84 0.99 1.83 (0.05) -- 12.34 17.3
12/31/90 12.34 0.87 (0.12) 0.75 (1.54) (0.08) 11.47 1.7
12/31/91 11.47 0.83 1.33 2.16 -- -- 13.63 18.9
12/31/92 13.63 0.82 0.16 0.98 (0.79) (0.25) 13.57 7.2
12/31/93 13.57 0.82 0.71 1.53 (0.93) (0.23) 13.94 11.2
12/31/94 13.94 0.83 (1.39) (0.56) (1.11) (0.07) 12.20 (4.1)
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/2/88-
12/31/88 $ 5,718 0.8%#+ 7.8% 13.0%
12/31/89 15,385 1.1 7.3 21.9
12/31/90 14,614 1.0 7.5 6.8
12/31/91 12,553 1.0 6.9 14.4
12/31/92 19,227 0.9 6.0 37.3
12/31/93 20,500 0.9 5.7 20.8
12/31/94 19,194 0.8 6.5 9.2
Fixed Income Portfolio
9/5/84-
6/30/85 10.00 0.85 1.08 1.93 -- -- 11.93 19.3
7/1/85-
12/31/85 11.93 0.54 0.58 1.12 (0.30) -- 12.75 9.6
12/31/86 12.75 0.95 0.75 1.70 (0.35) (0.01) 14.09 13.6
12/31/87 14.09 1.01 (1.10) (0.09) (1.51) (0.11) 12.38 0.8
12/31/88 12.38 0.98 (0.11) 0.87 (1.14) -- 12.11 7.0
12/31/89 12.11 0.98 0.58 1.56 -- -- 13.67 12.6
12/31/90 13.67 0.96 0.01 0.97 (2.07) -- 12.57 7.9
12/31/91 12.57 0.96 0.95 1.91 (0.05) -- 14.43 15.2
12/31/92 14.43 0.98 (0.04) 0.94 (1.06) -- 14.31 6.5
12/31/93 14.31 0.95 0.19 1.14 (0.91) -- 14.54 8.0
12/31/94 14.54 0.89 (1.36) (0.47) (1.17) -- 12.90 (3.2)
<CAPTION>
<S> <C> <C> <C> <C>
9/5/84-
6/30/85 4,360 1.0#+ 10.0# 15.3
7/1/85-
12/31/85 10,220 1.0#+ 8.9# 20.9
12/31/86 88,924 0.8 7.5 42.8
12/31/87 56,410 0.8 7.4 57.0
12/31/88 48,044 0.8 7.6 45.6
12/31/89 42,512 0.9 7.6 34.0
12/31/90 34,392 0.9 7.5 52.2
12/31/91 37,887 0.9 7.2 55.3
12/31/92 40,001 0.8 6.8 31.8
12/31/93 41,116 0.8 6.3 45.9
12/31/94 28,582 0.8 6.5 56.5
Government & Quality Bond Portfolio
9/5/84-
6/30/85 10.00 0.89 1.05 1.94 -- -- 11.94 19.4
7/1/85-
12/31/85 11.94 0.59 0.49 1.08 (0.25) -- 12.77 9.2
12/31/86 12.77 1.17 0.11 1.28 (0.33) 0.02 13.70 10.3
12/31/87 13.70 1.11 (1.01) 0.10 (1.83) -- 11.97 1.6
12/31/88 11.97 1.13 (0.08) 1.05 (1.43) -- 11.59 8.8
12/31/89 11.59 1.10 0.71 1.81 -- -- 13.40 15.6
12/31/90 13.40 1.05 (0.09) 0.96 (2.30) -- 12.06 7.8
12/31/91 12.06 1.00 1.08 2.08 (0.11) -- 14.03 17.3
12/31/92 14.03 1.02 (0.05) 0.97 (1.07) -- 13.93 6.9
12/31/93 13.93 0.90 0.25 1.15 (0.86) -- 14.22 8.3
12/31/94 14.22 0.86 (1.30) (0.44) (0.73) (0.19) 12.86 (3.1)
<CAPTION>
<S> <C> <C> <C> <C>
9/5/84-
6/30/85 31,079 1.0#+ 10.7# 31.3
7/1/85-
12/31/85 93,320 0.9#+ 9.5# 14.3
12/31/86 238,701 0.8 9.2 28.0
12/31/87 267,091 0.8 8.7 36.0
12/31/88 195,984 0.8 8.9 120.5
12/31/89 163,082 0.8 8.6 71.8
12/31/90 155,522 0.8 8.5 63.3
12/31/91 197,463 0.8 7.8 87.5
12/31/92 207,860 0.8 7.3 76.4
12/31/93 264,660 0.7 6.2 93.2
12/31/94 232,530 0.7 6.4 117.6
Money Market Portfolio
9/5/84-
6/30/85 1.00 0.06 -- 0.06 (0.06) -- 1.00 --
7/1/85-
12/31/85 1.00 0.03 -- 0.03 (0.03) -- 1.00 --
12/31/86 1.00 0.06 -- 0.06 (0.06) -- 1.00 --
12/31/87 1.00 0.06 -- 0.06 (0.06) -- 1.00 --
12/31/88 1.00 0.07 -- 0.07 (0.07) -- 1.00 --
12/31/89 1.00 0.08 -- 0.08 (0.08) -- 1.00 8.2
12/31/90 1.00 0.07 -- 0.07 (0.07) -- 1.00 7.4
12/31/91 1.00 0.06 -- 0.06 (0.06) -- 1.00 5.6
12/31/92 1.00 0.03 -- 0.03 (0.03) -- 1.00 3.4
12/31/93 1.00 0.02 -- 0.02 (0.02) -- 1.00 2.0
12/31/94 1.00 0.04 -- 0.04 (0.04) -- 1.00 3.8
<CAPTION>
<S> <C> <C> <C> <C>
9/5/84-
6/30/85 2,904 1.0#+ 7.6# --
7/1/85-
12/31/85 7,594 1.0#+ 6.4# --
12/31/86 41,771 0.7 5.9 --
12/31/87 83,360 0.7 6.4 --
12/31/88 171,364 0.7 7.2 --
12/31/89 248,774 0.7 8.6 --
12/31/90 181,956 0.7 7.6 --
12/31/91 119,855 0.7 5.7 --
12/31/92 127,262 0.6 3.3 --
12/31/93 99,309 0.6 2.7 --
12/31/94 126,004 0.6 3.8 --
# Annualized.
+ Net of expense reimbursement.
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
</TABLE>
4
<PAGE> 10
- --------------------------------------------------------------------------------
THE TRUST
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST (the "Trust") is an open-end diversified management
investment company established as a Massachusetts business trust under a
Declaration of Trust dated August 26, 1983, as amended on September 1, 1988 and
January 19, 1990. This Prospectus includes the twelve separate portfolios of the
Trust which are the: Foreign Securities Portfolio, Capital Appreciation
Portfolio, Growth Portfolio, Natural Resources Portfolio, Growth and Income
Portfolio (formerly, the Convertible Securities Portfolio), Strategic
Multi-Asset Portfolio, Multi-Asset Portfolio, High Yield Portfolio, Target '98
Portfolio, Fixed Income Portfolio, Government and Quality Bond Portfolio, and
Money Market Portfolio (each a "Portfolio" and collectively the "Portfolios").
The Trust issues a separate series of shares for each Portfolio, which in some
instances have rights separate from other series of shares. The Trustees may
provide for additional portfolios from time to time. The Declaration of Trust
permits the Trustees to issue an unlimited number of full or fractional shares
of each series of shares. (See "Dividends, Distributions and Taxes.")
SunAmerica Asset Management Corp. ("SAAMCo" or the "Adviser"), an indirect
wholly owned subsidiary of SunAmerica Inc., serves as investment adviser for all
the portfolios of the Trust. (See "SAAMCo.") Wellington Management Company
("WMC" or the "Sub-Adviser") serves as sub-adviser for all the Portfolios
included in this prospectus. (See "Wellington Management Company.") When
referred to collectively herein, SAAMCo and WMC shall be referred to as the
"Advisers."
Shares of the Portfolios are issued and redeemed only in connection with
investments in and payments under variable annuity contracts and variable life
insurance policies ("Variable Contracts") of Anchor National Life Insurance
Company, First SunAmerica Life Insurance Company, Phoenix Mutual Life Insurance
Company and Presidential Life Insurance Company (the "Life Companies"). Certain
series of the Trust may not be available in connection with a particular
contract. Anchor National Life Insurance Company and First SunAmerica Life
Insurance Company are under common control with, and therefore are affiliated
with, the Adviser. Phoenix Mutual Life Insurance Company and Presidential Life
Insurance Company are not affiliates of the Adviser. The Trust does not foresee
a disadvantage to Contract owners arising out of the fact that the Trust offers
its shares for Variable Contracts other than those offered by life insurance
companies affiliated with the Adviser. Nevertheless, the Trust's Board of
Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response thereto. If such a conflict were to occur,
one or more insurance company separate accounts might withdraw their investments
in the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Portfolio of the Trust has a different investment objective which it
pursues through separate investment policies as described below. Each Portfolio
is managed separately and the risks and opportunities of each Portfolio should
be examined separately. The differences in objectives and policies among the
Portfolios can be expected to affect the investment return of each Portfolio and
the degree of market and financial risk of each Portfolio. The investment
objective of each Portfolio stated below may not be changed without the approval
of the holders of the outstanding shares of each Portfolio affected. There is no
assurance that the investment objectives of the various Portfolios will be met.
5
<PAGE> 11
EQUITY PORTFOLIOS
FOREIGN SECURITIES PORTFOLIO
The investment objective of this Portfolio is long-term capital
appreciation through investment in a diversified portfolio of primarily equity
securities issued by foreign companies and primarily denominated in foreign
currencies. When, in the opinion of the Sub-Adviser, non-U.S. dollar denominated
fixed income securities offer attractive capital appreciation potential, the
Portfolio may invest up to 20% of its assets in such securities issued by
domestic and foreign companies, foreign governments and their agencies and
instrumentalities and supranational agencies. Investments will cover a broad
range of companies and industries in a number of foreign countries. The
Sub-Adviser anticipates that, under normal market conditions, the Portfolio will
diversify its investments among a minimum of five (5) countries.
Securities will be selected on the basis of fundamental analysis to
identify those companies which, in the judgment of the Sub-Adviser, possess
above-average capital appreciation potential. In addition to fundamental
analysis of companies and their industries, the Sub-Adviser evaluates the
economic and political climate of the country in which the company is located
and the principal securities markets in which such securities are traded. The
Sub-Adviser believes that fundamental analysis coupled with diversification
among a number of countries and among a broad range of companies may serve to
lessen the risks which may be associated with investing in foreign securities.
By investing in foreign securities, the Portfolio attempts to take
advantage of differences between economic trends and the performance of
securities markets in various countries. To date, the market values of
securities of companies located in many countries have moved relatively
independently of each other and during certain periods the return on equity
investments in some countries has exceeded the return of similar investments in
the United States. It may be possible to obtain significant appreciation from a
portfolio of foreign investments and also achieve increased diversification. The
Portfolio achieves increased diversification by combining securities from
various countries that offer different investment opportunities and are affected
by different economic trends. International diversification reduces the effect
that events in any one country will have on overall investment returns. Of
course, negative movement by investments in one foreign market represented in
the Portfolio may offset gains from investments in another country's markets.
Depending upon market conditions, the Portfolio may be invested primarily
in foreign securities. All or a portion of the foreign securities purchased by
the Portfolio may be in the form of American Depositary Receipts ("ADRs") or
Global Depositary Receipts ("GDRs"). ADRs are typically issued by a U.S. bank or
trust company, and evidence ownership of underlying securities issued by a
foreign corporation. GDRs are issued globally, and evidence a similar ownership
arrangement. Generally, ADRs are designed for trading in the United States
securities markets, and GDRs are designed for trading in non-U.S. securities
markets.
The Sub-Adviser will not attempt to actively time either short-term market
trends or short-term currency trends in any market. The Portfolio may enter into
forward foreign exchange contracts to protect against uncertainty in the future
value of foreign currencies relative to the U.S. dollar and to facilitate the
settlement of purchase and sale transactions. A forward foreign exchange
contract involves the future obligation to purchase or sell a specific currency
on a specified date and at a specified price determined at the time of entering
into the contract. It should be recognized that the use of foreign currency
contracts to protect the value of the Portfolio's assets against a decline in
the value of a currency does not eliminate fluctuations in the value of the
Portfolio's underlying security holdings. In addition, although the use of
foreign exchange contracts can minimize the risk of loss due to a decline in
value of the foreign currency, the use of such contracts will tend to limit any
potential gain resulting from an increase in the relative value of the foreign
currency to the U.S. dollar.
6
<PAGE> 12
In addition to the capital appreciation opportunities which may exist,
investments in foreign markets involve special risks and considerations not
typically associated with investing in the United States. Such risks and
considerations may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on foreign
portfolio transactions, less readily available public information regarding
issuers, potential adverse changes in tax and exchange control regulations, and
the potential for restrictions on the flow of international capital. Although
income is not an objective of this Portfolio, many foreign countries impose
withholding taxes on dividends which may not be recoverable by the Portfolio.
Also, the value of foreign currencies relative to the U.S. dollar will fluctuate
and will therefore affect, either favorably or unfavorably, the value of the
underlying securities which the Portfolio owns.
The Portfolio may engage in options transactions and may purchase and sell
futures contracts and options thereon to reduce certain risks of its investments
and to attempt to enhance income. (See "Hedging and Income Enhancement
Strategies.")
The Portfolio intends, except under unusual market conditions or to meet
liquidity needs, to remain fully invested in foreign equity securities. However,
the Portfolio may invest in short-term money market instruments denominated in
U.S. dollars, including repurchase agreements, which are authorized for purchase
by the Money Market Portfolio. (See "Money Market Portfolio" and "Repurchase
Agreements.") In addition, the Portfolio may purchase when-issued securities.
(See "When-Issued Securities" in the Statement of Additional Information.)
CAPITAL APPRECIATION PORTFOLIO
The investment objective of this Portfolio is to seek long-term capital
appreciation primarily through investments in growth equity securities which are
widely diversified by industry and company. In contrast to the majority of
growth equity securities which will be selected for the Growth Portfolio, the
Capital Appreciation Portfolio will generally consist of a greater proportion of
securities of smaller companies which may be newer and less seasoned, companies
which represent new or changing industries, and those which, in the opinion of
the Sub-Adviser, represent special situations, the potential future value of
which has not been recognized by other institutional investors. In seeking to
achieve its objective, the Portfolio will invest primarily in U.S. common stocks
and may sell covered call options on certain of such stocks on U.S. exchanges,
purchase call and put options and combinations of such options on U.S. exchanges
and enter into closing transactions with respect to certain of its option
positions on the exchanges. In addition, the Portfolio may invest in debt
securities and preferred stocks that are convertible into, or that carry
warrants to purchase, common stocks or other equity interests. The Portfolio
also may engage in transactions involving stock index futures and options
thereon as a hedge against changes in market conditions. (See "Hedging and
Income Enhancement Strategies.") In addition, the Portfolio may invest up to 25%
of its total assets in foreign securities. (See the discussion under "Foreign
Securities Portfolio" above and "Foreign Securities" in the Statement of
Additional Information.)
A significant portion of the Portfolio's equity investments are expected to
be in securities which are not listed for trading on domestic securities
exchanges and, although publicly traded, may be less liquid than securities
issued by larger, more seasoned companies which trade on domestic securities
exchanges. The Portfolio may invest up to 10% of its assets in securities which
are illiquid due to restrictions as to resale under the Securities Act of 1933
or for which market quotations are not readily available. To the extent such
investments are made, the Portfolio may have less freedom of disposition at
possibly less favorable prices than would be the case for securities not subject
to such restrictions. This limitation does not apply to securities that are
eligible for resale in accordance with Rule 144A under the Securities Act of
1933 and that have legal or contractual restrictions on resale but have a
readily available market and therefore are not considered illiquid by the
Sub-Adviser. (See "Illiquid Securities" below and in the Statement of Additional
Information.)
As a result of its investment policies, the Portfolio's securities can be
expected on average to exhibit greater volatility than the equity markets as a
whole as measured by the price movement of the
7
<PAGE> 13
Standard & Poor's 500 Composite Stock Index. The relative position size of each
security holding within the Portfolio may be determined, in part, by the
relative capitalization of the issue in the equity markets as a whole.
Therefore, highly capitalized companies may be allowed a larger position in the
Portfolio than smaller capitalized companies. As a result, the overall
diversification of the Portfolio's holdings may serve to reduce the specific
risk associated with investments in any one issuer.
The Portfolio may also invest in short-term money market instruments,
including repurchase agreements, authorized for purchase by the Money Market
Portfolio. (See "Money Market Portfolio" and "Repurchase Agreements.") In
addition, the Portfolio may purchase when-issued securities. (See "When-Issued
Securities" in the Statement of Additional Information.)
GROWTH PORTFOLIO
The investment objective of this Portfolio is to seek capital appreciation
primarily through investments in growth equity securities. Growth equity
securities include seasoned companies with proven records and above-average
earnings growth, and smaller companies with outstanding growth records and
potential. Growth equity securities tend to have above-average price/earnings
ratios and less-than-average current yield. The Portfolio's investments will be
widely diversified by industry and company. The Portfolio may also engage in
transactions involving stock index futures and options thereon as a hedge
against changes in market conditions. (See "Hedging and Income Enhancement
Strategies.")
The majority of the Portfolio's equity investments are securities listed on
the New York Stock Exchange and other domestic securities exchanges. The
Portfolio also invests in unlisted securities, but these are generally
securities that have an established over-the-counter market, although the depth
and liquidity of that market may vary from time to time and from security to
security. In addition, the Portfolio may invest up to 25% of its total assets in
foreign securities. (See the discussion under "Foreign Securities Portfolio" and
"Foreign Securities" in the Statement of Additional Information.) The Portfolio
may invest up to 10% of its assets in securities which are illiquid due to
restrictions as to resale under the Securities Act of 1933 or for which market
quotations are not readily available. To the extent such investments are made,
the Portfolio may have less freedom of disposition at possibly less favorable
prices than would be the case for securities not subject to such restrictions.
This limitation does not apply to securities that are eligible for resale in
accordance with Rule 144A under the Securities Act of 1933 and that have legal
or contractual restrictions on resale but have a readily available market and
therefore are not considered illiquid by the Sub-Adviser. (See "Illiquid
Securities" below and in the Statement of Additional Information.)
Convertible securities may constitute up to 20% of the Portfolio's net
assets, and may be used for defensive purposes or when they are an attractive
alternative to the underlying common stock. In seeking to achieve its objective
the Portfolio will primarily invest in U.S. common stocks and may sell covered
call options on certain of such stocks on U.S. exchanges, purchase call and put
options and combinations of such options on U.S. exchanges, and enter into
closing transactions with respect to certain of its option positions on the
exchanges.
The Portfolio's policy of investing in seasoned companies with proven
records and above-average earnings growth, other companies with changing or
accelerating growth profiles and smaller companies with outstanding growth
records and potential will subject the Portfolio to greater risk than may be
involved in investing in securities which are not selected for such growth
characteristics.
The Portfolio intends, except under unusual market conditions or to meet
liquidity needs, to remain fully invested in equity securities. However, the
Portfolio may invest in short-term money market instruments, including
repurchase agreements, authorized for purchase by the Money Market Portfolio.
(See "Money Market Portfolio" and "Repurchase Agreements.") In addition, the
Portfolio may purchase when-issued securities. (See "When-Issued Securities" in
the Statement of Additional Information.)
8
<PAGE> 14
NATURAL RESOURCES PORTFOLIO
The investment objective of this Portfolio is to provide a total return in
excess of the U.S. rate of inflation as represented by the Consumer Price Index.
The Portfolio will invest primarily in equity securities of companies which are
expected to benefit from rising inflation, because they own or control assets
which appreciate in inflationary periods, or because of increased activity
during these periods of inflation, and in debt obligations and fixed income
securities which are expected to provide favorable returns in periods of rising
inflation. The Portfolio will invest in domestic securities and foreign
securities. Securities issued by foreign issuers may be denominated in U.S.
dollars or foreign currencies.
Investments will be chosen primarily based on their historical and
projected relationship with inflation. The Portfolio will invest in securities
issued by companies engaged in exploration, mining, fabrication, processing or
trading in gold, and other precious metals and minerals including diamonds, and
natural resources including oil, timber, and agricultural commodities; real
estate investment trusts (REITs); and other investments which are expected to
provide a hedge against anticipated inflation. The Portfolio will concentrate
its investments in the securities of companies in gold-related industries,
including exploration, mining, fabrication, processing and trading in gold. In
addition, the Portfolio may invest in securities (including debt securities and
preferred stock) the terms of which are related to the market value of gold and
other natural resource assets, and may also invest its assets in short-term
investments including non-dollar denominated instruments. The Portfolio may also
invest up to 10% of its assets in the securities of investment companies
(including foreign investment companies) which make investments that are
expected to provide a hedge against anticipated inflation. However, the
Portfolio will not invest more than 5% of its assets in any single investment
company and will not purchase more than 3% of the voting stock of an investment
company. In addition, the Portfolio will not purchase the securities of any
closed-end investment company which would result in the funds which are advised
by the Adviser or by the Sub-Adviser owning, in the aggregate, more than 10% of
the voting stock of the closed-end investment company. If the Portfolio invests
in investment companies, the Portfolio's shareholders will bear not only their
proportionate share of expenses of the Portfolio, but also indirectly will bear
similar expenses of the underlying investment company.
Investments in securities related to gold or other precious metals and
minerals are considered speculative and are impacted by a host of world-wide
economic, financial and political factors. Prices of gold and other precious
metals may fluctuate sharply over short time periods due to: changes in
inflation or expectations regarding inflation in various countries; metal sales
by governments, central banks or international agencies; investment speculation;
changes in industrial and commercial demand; and governmental prohibitions or
restrictions on the private ownership of certain precious metals or minerals.
The Portfolio's concentration in gold related industries exposes it to greater
risk than a portfolio less concentrated in a group of related industries.
The value of equity investments related to other natural resources such as
oil, timber, and agricultural commodities will fluctuate pursuant to market
conditions, generally, as well as the market for the particular natural resource
in which the issuer is involved. The Sub-Adviser believes that the values of
natural resources fluctuate differently with respect to different stages of the
inflationary cycle. In addition, the values of natural resources are subject to
numerous factors including events of nature and international politics. The
Sub-Adviser will seek securities that are attractively priced relative to the
intrinsic value of the relevant natural resource, or that are of companies which
are positioned to benefit during particular portions of the inflationary cycle.
It is expected that the market price of securities, the principal amount,
redemption terms, or conversion terms of which are related to the market price
of a natural resource asset, will fluctuate on the basis of the natural resource
on which such security is based. However, there may not be a perfect correlation
between the movements of the asset-based security and the underlying natural
resource asset. Further, such securities typically bear interest or pay
dividends at below market rates, and in certain cases at nominal rates.
9
<PAGE> 15
The Portfolio's investment in REITs may be subject to certain risks
associated with the direct ownership of real estate. These risks include:
declines in the value of real estate; risks related to general and local
economic conditions; overbuilding and increased competition; increases in
property taxes; and operating expenses and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of the Portfolio's investment.
In addition, "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. They are not diversified and are subject to the risks of
financing projects. 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") or to maintain exemption from the Investment
Company Act of 1940, as amended (the "1940 Act").
Depending upon market conditions, the Portfolio may be invested primarily
in foreign securities. All or a portion of the foreign securities purchased by
the Portfolio may be in the form of ADRs or GDRs. ADRs are typically issued by a
U.S. bank or trust company, and evidence ownership of underlying securities
issued by a foreign corporation. GDRs are issued globally, and evidence a
similar ownership arrangement. Generally, ADRs are designed for trading in the
United States securities markets, and GDRs are designed for trading in non-U.S.
securities markets.
Investments in foreign markets involve special risks and considerations not
typically associated with investing in the United States. Such risks and
considerations may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on foreign
portfolio transactions, less readily available public information regarding
issuers, potential adverse changes in tax and exchange control regulations, and
potential for restrictions on the flow of international capital. Although income
is not an objective of this Portfolio, many foreign countries impose withholding
taxes on dividends which may not be recoverable by the Portfolio. Also, the
value of foreign currencies relative to the U.S. dollar will fluctuate and will
therefore affect the value of the underlying securities which the Portfolio
owns. The Portfolio may enter into forward foreign exchange contracts to
facilitate the settlement of purchase and sale transactions and on occasion to
protect against uncertainty in the future value of foreign currencies relative
to the U.S. dollar. A forward foreign exchange contract involves the future
obligation to purchase or sell a specific currency on a specified date and at a
specified price determined at the time of entering into a contract. It should be
recognized that the use of foreign currency contracts to protect the value of
the Portfolio's assets against a decline in the value of a currency does not
eliminate fluctuations in the value of the Portfolio's underlying security
holdings. In addition, although the use of foreign exchange contracts can
minimize the risks of loss due to a decline in the value of foreign currency,
the use of such contracts will tend to limit any potential gain resulting from
an increase in the relative value of the foreign currency to the U.S. dollar.
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. (See "Money Market Portfolio" and
"Repurchase Agreements.") In addition, the Portfolio may purchase when-issued
securities. (See "When-Issued Securities" in the Statement of Additional
Information.)
The Portfolio may write covered call options on stocks, purchase put and
call options and combinations of such options, and enter into closing
transactions with respect to such options. The Portfolio also may engage in
transactions involving stock index futures contracts and options thereon and in
transactions involving the future delivery of fixed income securities
("Financial Futures Contracts") and options thereon as a hedge against changes
in market conditions. (See "Hedging and Income Enhancement Strategies.")
10
<PAGE> 16
GROWTH AND INCOME PORTFOLIO
The investment objective of this Portfolio is to provide high current
income and long-term capital appreciation. The Portfolio will seek to achieve
its objective by investing, under normal market conditions, at least 65% of its
total assets in securities that provide the potential for growth and offer
income, such as dividend-paying common stocks and securities convertible into
common stock. The portion of the Portfolio's assets invested in equity
securities and debt securities may vary from time to time due to changes in
interest rates and economic and other factors. This Portfolio is not designed
for investors seeking a steady flow of income distributions. Rather, the
Portfolio's policy of investing in income-producing securities is intended to
provide investors with a higher overall investment return than may be achieved
by investing solely in growth stocks.
The equity securities purchased for the Portfolio will generally be issued
by publicly-held corporations. However, the Sub-Adviser may select equity
securities for the Portfolio without regard to the size or established history
of the issuer. Generally, the prices of equity securities may be affected by
such factors as a change in a company's earnings; fluctuations in interest
rates; or changes in the rate of economic growth. Further, to the extent the
Portfolio invests in issuers with small market capitalizations, the Portfolio
would be subject to greater risk than may be involved in investing in securities
of issuers with larger market capitalizations. The securities of small
capitalization issuers typically include those of newer or less seasoned
companies, and may be more speculative than securities issued by larger, more
well-established issuers. Other risks associated with smaller or newer issuers
include less publicly-available information about the issuer; the absence of a
business history or historical pattern of performance; and the normal risks
which accompany the development of new products, markets or services.
The convertible securities in which the Portfolio may invest are not
subject to any limitations as to ratings and may include high, medium, lower and
unrated securities. However, the Portfolio may not invest more than 20% of its
total assets in convertible securities rated below "Baa" by Moody's Investors
Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Ratings Services
("Standard & Poor's") (including convertible securities that have been
downgraded), or in unrated convertible securities that are of comparable quality
as determined by the Sub-Adviser. Convertible securities rated lower than "Baa"
by Moody's or "BBB" by Standard & Poor's or unrated securities of comparable
quality, commonly referred to as "junk bonds" or "high yield securities," are
speculative and generally involve a higher risk of loss of principal and income
than higher-rated securities. See "High Yield Portfolio" below and the Statement
of Additional Information for a discussion of the risks associated with
lower-rated, high-yield securities.
The Portfolio may also invest up to 20% of its total assets in equity
securities of foreign companies in developed countries which are traded on a
recognized domestic or foreign securities exchange. Although such foreign
securities may be denominated in foreign currencies, the Portfolio anticipates
that the majority of its foreign investments will be in ADRs or GDRs. See
"Foreign Securities Portfolio" for a discussion of these types of securities.
The Portfolio may enter into forward currency contracts to protect against
uncertainty in the level of future exchange rates. However, the Sub-Adviser will
not actively attempt to time either short-term market trends or short-term
currency trends in any market. See "Hedging and Income Enhancement Strategies"
below.
In addition to the equity and convertible securities described above, the
Portfolio may invest up to 35% of its total assets in the following instruments:
short-term money market instruments denominated in U.S. dollars including
repurchase agreements and Section 4(2) commercial paper, which are authorized
for purchase by the Money Market Portfolio (see "Money Market Portfolio" and
"Repurchase Agreements"); fixed-income securities, including obligations issued
or guaranteed as to principal and interest by the U.S. government, its agencies
or instrumentalities, including mortgage-related securities; high quality debt
securities issued by foreign sovereigns; corporate debt securities rated at
least "BBB" by Standard & Poor's or "Baa" by Moody's, commonly known as
"investment grade securities," or unrated securities that are deemed to be of
comparable quality by the Sub-Adviser; and equity and convertible securities of
issuers that are not paying a dividend, if there exists
11
<PAGE> 17
the potential for growth of capital or future income. See the Statement of
Additional Information concerning these securities. It is the Portfolio's policy
to attempt to sell, within a reasonable time period, a debt security which has
been downgraded below investment grade (other than convertible securities),
provided that such disposition is in the best interests of the Portfolio and its
shareholders. See Appendix A for a description of corporate bond ratings.
Finally, the Portfolio may enter into contracts on financial futures or
stock index futures, or options thereon, for hedging purposes. See "Hedging and
Income Enhancement Strategies" below. The Portfolio may also make loans of
portfolio securities and invest in securities issued on a "when-issued" or
"delayed delivery" basis. (See "When-Issued and Delayed Delivery Securities" and
"Loans of Portfolio Securities" in the Statement of Additional Information.) In
addition, in any period of market weakness or of uncertain market conditions,
the Portfolio may establish a temporary defensive position to preserve capital
by investing up to 100% of total assets in cash, cash equivalents or high
quality short-term fixed-income securities.
MANAGED PORTFOLIOS
STRATEGIC MULTI-ASSET PORTFOLIO
The investment objective of this Portfolio is to seek high long-term total
investment return. Total investment return consists of dividends, interest and
other income, and net realized and unrealized appreciation and depreciation in
the value of the Portfolio's security holdings. This Portfolio will invest in a
diversified group of securities consisting of the asset classes described below
and, although it is designed to offer the potential for higher investment return
than the Multi-Asset Portfolio, it can be expected to result in greater price
volatility and potentially greater risk of loss than the Multi-Asset Portfolio.
The asset allocation of the Portfolio will be actively managed among the
following asset categories: equity securities, including the securities of
smaller companies which may be newer and less seasoned, international
securities, investment grade bonds, high-yield, high-risk bonds and money market
instruments.
Asset allocation decisions will be based upon the same type of fundamental
analysis as for the Multi-Asset Portfolio and the Sub-Adviser will not attempt
to make short-term market timing decisions. Although the Portfolio is expected
to have some portion of its assets in equities, fixed income securities and
money market instruments at all times, investments in each sub-sector (e.g.
domestic or international equities) may vary substantially based upon the
Sub-Adviser's fundamental analysis of the relative attractiveness and potential
risks of each sector. The Portfolio does not have percentage limitations on the
amount allocated to each market sector or sub-sector and may emphasize such
sectors or sub-sectors indicated by the Sub-Adviser's analysis and judgment.
The Portfolio may sell (write) covered call options on stocks, purchase put
and call options and combinations of such options, and enter into closing
transactions with respect to such options. The Portfolio also may engage in
transactions involving stock index futures contracts and options thereon and
Financial Futures Contracts and options thereon as a hedge against changes in
market conditions. (See "Hedging and Income Enhancement Strategies.") In
addition, the Portfolio may purchase when-issued securities. (See "When-Issued
Securities" in the Statement of Additional Information.)
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements and Section 4(2) commercial
paper, which are authorized for purchase by the Money Market Portfolio. (See
"Money Market Portfolio" and "Repurchase Agreements.")
MULTI-ASSET PORTFOLIO
The investment objective of this Portfolio is to seek long-term total
investment return consistent with moderate investment risk. Total investment
return consists of dividends, interest and other
12
<PAGE> 18
income and net realized and unrealized appreciation and depreciation in the
value of the Portfolio's investments. The Portfolio's investments will be
actively managed and allocated among the following asset categories: equity
securities, convertible securities, investment grade fixed income securities and
money market securities.
The Sub-Adviser will actively manage the allocation of assets among market
sectors based upon its judgment of the projected investment environment for
financial assets, relative fundamental values and attractiveness of each sector,
and expected future returns of each sector. The Sub-Adviser will base its asset
allocation decisions on fundamental analysis and will not attempt to make
short-term market timing decisions among market sectors. As a result, shifts in
asset allocation are expected to be gradual and continuous and the Portfolio
will normally have some portion of its assets invested in each market sector at
all times. The Portfolio does not have percentage limitations on the amount
allocated to each market sector and may emphasize such sectors indicated by the
Sub-Adviser's analysis and judgment.
The Portfolio may sell (write) covered call options on stocks, purchase put
and call options and combinations of such options, and enter into closing
transactions with respect to such options. The Portfolio also may engage in
transactions involving stock index futures contracts and options thereon and
Financial Futures Contracts and options thereon as a hedge against changes in
market conditions. (See "Hedging and Income Enhancement Strategies.") In
addition, the Portfolio may purchase when-issued securities. (See "When-Issued
Securities" in the Statement of Additional Information.)
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements and Section 4(2) commercial
paper, which are authorized for purchase by the Money Market Portfolio. (See
"Money Market Portfolio" and "Repurchase Agreements.")
INCOME PORTFOLIOS
HIGH YIELD PORTFOLIO
The primary objective of this Portfolio is to produce high current income.
A secondary investment objective is capital appreciation. The Portfolio will
seek its objectives by investing, except for temporary defensive purposes, at
least 65% of its assets in high-yielding, high-risk, income producing corporate
bonds, also known as "junk bonds." Although these securities can be expected to
provide higher yields, they may be subject to greater market fluctuations and
the risk of loss of income and principal, than lower yielding, higher-rated
fixed-income securities. The Portfolio may invest up to 10% of its assets in
securities which are subject to restrictions as to resale or for which market
quotations are not readily available. To the extent such investments are made,
the Portfolio may have less freedom of disposition and receive possibly less
favorable prices than would be the case for securities not subject to such
restrictions.
Because investment in such high-yield, high-risk securities entails greater
risks, an investment in the Portfolio should not constitute a complete
investment program and may not be appropriate for all investors. The investments
of the Portfolio will be subject to greater market fluctuations and risk of loss
of income and principal due to default by an issuer than are investments in
higher rated bonds.
Generally, bonds providing the highest yield carry lower ratings (Baa or
lower by Moody's or BBB or lower by Standard & Poor's than those assigned by
Standard & Poor's or Moody's to investment grade bonds, or are unrated.
Descriptions of the Standard & Poor's and Moody's rating categories are set
forth in Appendix A. In general, these credit ratings represent only a portion
of the data analyzed by the Sub-Adviser when evaluating bonds for purchase or
sale in the Portfolio. In many instances, the rating agencies are not able to
reflect changes in value of high-yield, high-risk bonds in a timely manner and
are therefore valuable only so much as they can be employed as one source of
credit quality data in the Portfolio's overall investment strategy.
13
<PAGE> 19
As of December 31, 1994 the Portfolio held securities of 82 corporate
issuers, and the Portfolio's holdings for the fiscal year 1994 had on average
the following credit quality characteristics:
<TABLE>
<CAPTION>
PERCENTAGE
OF
INVESTMENT NET ASSETS
------------------------------------------------------------- ----------
<S> <C>
Cash and Cash Equivalents.................................... 12.6%
Corporate Bonds
BB+........................................................ 2.7%
BB......................................................... 3.3%
BB-........................................................ 18.2%
B+......................................................... 17.3%
B.......................................................... 25.3%
B-......................................................... 13.2%
CCC+....................................................... 4.7%
Non-rated.................................................. 1.3%
Other........................................................ 1.4%
----------
100.0%
=========
</TABLE>
The Portfolio will invest in a variety of fixed-income instruments which
are rated less than investment grade or are unrated. It can be expected that a
majority of securities selected and held will have a relatively high current
yield, when compared to investment grade fixed-income securities. The Portfolio
will also utilize other types of securities such as discount bonds, zero coupon
bonds*, convertible bonds, straight and convertible preferred stocks, warrants
and common stocks. For a more complete description of the characteristics and
risks involved in investing in these securities see the Statement of Additional
Information. To the extent that warrants and common stocks are used there may be
some additional investment risk and countervailing opportunity. These securities
will be selected and held when, in the opinion of the Sub-Adviser, the less than
highest available current yield is more than offset by prospects for capital
appreciation. The Portfolio in the future will utilize such securities as from
time to time may be created and which the Adviser and Sub-Adviser deem suitable
and appropriate.
The Portfolio may invest, without limit, in unrated securities if such
securities offer, in the opinion of the Sub-Adviser, a relatively high yield
without undue risk. Although the Portfolio will invest primarily in lower-rated
securities, it will not invest in securities in the lowest rating categories (Ca
for Moody's and CC for Standard & Poor's) unless the Sub-Adviser believes that
the financial condition of the issuer or the protection afforded to the
particular securities is stronger than would otherwise be indicated by such low
ratings.
When changing economic conditions and other factors cause the yield
difference between lower-rated and higher-rated securities to narrow, the
Portfolio may purchase higher-rated securities if the Sub-Adviser believes that
the risk of loss of income and principal may be substantially reduced with only
a relatively small reduction in yield. In addition, under unusual market or
economic conditions, the Portfolio, for temporary defensive purposes, may invest
up to 100% of its assets in cash, securities issued or guaranteed by the U.S.
Government or its instrumentalities or agencies, certificates of deposit,
bankers' acceptances and other bank obligations, commercial paper rated in the
highest category by an established rating agency, or other fixed-income
securities deemed by the Sub-Adviser to be consistent with a defensive posture.
The yield on such securities may be lower than the yield on lower-rated
fixed-income securities. The Portfolio may also invest in high yield bonds
issued by foreign corporations which are denominated in U.S. or foreign
currencies. (See "Foreign Securities Portfolio.")
- ---------------
* For a more complete discussion of the risks involved in zero coupon bond
investments see the description of the Target '98 Portfolio.
14
<PAGE> 20
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. (See "Money Market Portfolio" and
"Repurchase Agreements.") In addition, the Portfolio may purchase when-issued
securities. (See "When-Issued Securities" in the Statement of Additional
Information.)
The Portfolio may sell (write) covered call options on stocks, purchase put
and call options on stocks and combinations of such options listed on U.S.
exchanges, and enter into closing transactions with respect to such options
positions. The Portfolio may also enter into Financial Futures Contracts and
options thereon for hedging positions. (See "Hedging and Income Enhancement
Strategies.")
RISK FACTORS -- HIGH YIELD BONDS
The values of lower-rated securities, also referred to as "junk bonds,"
generally fluctuate more than those of higher-rated securities. In addition, a
lower rating can reflect a greater possibility of an adverse change in financial
condition affecting the ability of an issuer to make payments of interest or
principal. Because the Portfolio invests primarily in securities in lower-rated
categories, the achievement of the Portfolio's goals is more dependent on the
Sub-Adviser's ability than would be the case if the Portfolio were investing in
securities in the higher-rated categories. Investors should carefully consider
their ability to assume the risks involved before making an investment in this
Portfolio.
The market value of the Portfolio's investments will change in response to
changes in interest rates and the relative financial strength of each issuer.
During periods of falling interest rates, the values of long-term fixed-income
securities generally rise. Conversely, during periods of rising interest rates
the value of such securities generally decline. Changes in the financial
strength of an issuer or changes in the ratings of any particular security may
also affect the value of these investments. The value of high-yield, high-risk
bonds may also be influenced by the bond market's perception of an issuer's
credit quality or its outlook for economic growth. In times where economic
conditions appear to be deteriorating, lower-rated bonds may decline in market
value primarily due to investor's heightened concern over an issuer's credit
quality and its ability to make timely interest and principal payments. In such
periods of real or perceived economic downturn the secondary market for high-
yield, high-risk bonds may become thin and liquidity may be significantly
reduced. This may lead to increased volatility and sudden price movements in the
secondary market.
In a volatile market the Portfolio may find it difficult to value its
securities accurately. During such times the responsibility of the Adviser and
Sub-Adviser to value Portfolio securities becomes more difficult and judgment
plays a greater role in valuation because there is less reliable, objective data
available. Fluctuations in the value of Portfolio securities will not affect
cash income but will be reflected in the Portfolio's net asset value.
TARGET '98 PORTFOLIO
The investment objective of this Portfolio is to seek a predictable
compounded investment return for the specified time period, consistent with
preservation of capital. The Portfolio will invest primarily in zero coupon
securities and current interest-bearing, investment grade debt obligations which
are issued by the U.S. Government, its agencies and instrumentalities, and both
domestic and foreign corporations. These investments will generally mature no
later than November 15, 1998 (the "Maturity Date"). Upon maturity, the Portfolio
will be converted to cash.
While there is no assurance that the Portfolio will succeed in achieving
its objective, it seeks capital preservation for investors who hold their
investment until maturity. In addition, the Portfolio seeks to provide investors
with a sum at the Maturity Date (the "Maturity Value") which, together with the
reinvestment of all dividends and distributions, exceeds their original
investment in the Portfolio by a relatively predictable amount. Investors are
more likely to receive the expected Maturity Value if they retain their
participation in the Portfolio until the Maturity Date. Any investor who
15
<PAGE> 21
redeems his or her participation prior to the Maturity Date is likely to achieve
a different investment result than the return that was predicted on the date
investment was made, and may even suffer a loss.
The Portfolio will invest in both zero coupon securities and current
interest-bearing debt obligations generally maturing not later than the Maturity
Date. Zero coupon securities are non-interest bearing debt obligations which are
payable in full at maturity, and which typically trade at a substantial or deep
discount from their value at maturity. Thus, the return on these instruments is
known at the time of investment, making them suitable for this Portfolio.
However, the value of zero coupon securities, and therefore the value of the
Portfolio, may be subject to greater market fluctuations from changing interest
rates prior to maturity than the value of debt obligations of comparable
maturities that bear interest currently.
The Portfolio will invest in current interest-bearing debt obligations in
order to provide cash to pay the Portfolio's expenses, to provide liquidity and
to meet transfer and redemption requests. By managing the Portfolio to try to
match current income with expenses, the Portfolio may reduce its reinvestment
risk. Reinvestment risk is the risk that future payments cannot be reinvested at
interest rates that are as high or higher than needed to achieve the Portfolio's
predicted compounded investment return. As zero coupon securities do not pay
interest currently, they present no reinvestment risk to the Portfolio.
Zero coupon securities are generally stripped obligations of the U.S.
Government. They are also offered, to a limited extent, by corporate issuers.
The Portfolio is authorized to invest in both government and corporate zero
coupon securities. The current interest-bearing debt obligations in which the
Portfolio is authorized to invest may be offered by domestic or foreign issuers
and may be principally traded in the U.S. or foreign markets. All debt
obligations in which the Portfolio invests will be dollar denominated. Corporate
obligations must be rated at the time of purchase, within the four highest
categories assigned by Moody's or by Standard & Poor's (see Appendix A).
While the creditworthiness of corporate issuers will be carefully
considered, investors bear the risk that these issuers will fail to make
payments of principal or interest when due. This credit risk cannot be
eliminated. If an issuer defaults on its obligations, the value of the Portfolio
may be adversely affected.
Investing in obligations of foreign issuers or obligations of domestic
issuers that trade in foreign markets involves special risks and considerations
not typically associated with investing in the United States. Such risks and
considerations may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on foreign
portfolio transactions, less readily available public information regarding
issuers, potential adverse changes in tax and exchange control regulations, and
the potential for restrictions on the flow of international capital. Many
foreign countries impose withholding taxes on dividends which may not be
recoverable by the Portfolio. Also, the value of foreign currencies relative to
the U.S. dollar will fluctuate and will therefore affect, either favorably or
unfavorably, the value of the underlying securities which the Portfolio owns. By
investing in dollar-denominated foreign securities, the Portfolio may reduce the
risk associated with fluctuations in the value of foreign currencies relative to
the U.S. dollar.
The Portfolio is also permitted to invest in high quality short-term money
market instruments and repurchase agreements such as those invested in by the
Money Market Portfolio. (See "Money Market Portfolio" and "Repurchase
Agreements".) As the Maturity Date approaches, the Portfolio will invest in more
short-term, highly liquid investments to preserve capital. In addition, the
Portfolio may purchase when-issued securities. (See "When-Issued Securities" in
the Statement of Additional Information.)
Generally, the market value of the underlying securities in the Portfolio
will vary inversely with changes in interest rates. This means that the value of
a share of the Portfolio will tend to rise as interest rates decline, and
decline as interest rates rise. While the risk of these fluctuations in value is
greater when the period to maturity is longer, they tend to diminish as the
Maturity Date approaches. Accordingly, investors are more likely to receive
their Maturity Value if they retain their investment in
16
<PAGE> 22
the Portfolio until the Maturity Date. Nevertheless, although investors can
redeem shares at the current net asset value at any time, the value of the
shares may be higher or lower than when purchased. An investment in the
Portfolio is not suited to frequent purchases and sales in response to
short-term fluctuations in the Portfolio's net asset value.
The Internal Revenue Service has ruled that the owner of zero coupon
securities, for Federal income tax purposes, realizes taxable interest each year
equal to a portion of the difference between the face value of the zero coupon
securities and their purchase price. Similarly, the cash distributions received
from current interest-bearing debt obligations are taxable each year. The net
investment income of the Portfolio will equal the sum of the imputed interest
earned on its zero coupon securities and the interest upon its current
interest-bearing debt obligations, less the Portfolio's expenses.
FIXED INCOME PORTFOLIO
The investment objective of this Portfolio is to seek a high level of
current income consistent with preservation of capital. The Portfolio will
invest primarily in investment grade, fixed income securities. Portfolio
management will emphasize sector analysis, call protection and credit research,
and will attempt to maintain a high, steady and possibly growing income stream.
The Portfolio will invest at least 80% of the value of its total assets,
taken at market value at the time of investment, in one or more of the
following:
(1) Marketable straight-debt securities of domestic issuers, and of
foreign issuers (payable in U.S. dollars) rated at the time of purchase
within the four highest grades assigned by Moody's (Aaa, Aa, A or Baa) or
by Standard & Poor's (AAA, AA, A or BBB);
(2) Securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (see "Government and Quality Bond
Portfolio");
(3) Commercial paper rated at the time of purchase Prime-1 by Moody's
or A-1 by Standard & Poor's;
(4) Obligations of banks having total assets in excess of $1 billion.
The balance of the Portfolio's investments will include: debt securities
(including those convertible into, or carrying warrants to purchase, common
stocks or other equity interests, and privately placed debt securities);
preferred stocks (including those convertible into, or carrying warrants to
purchase, common stocks or other equity interests); and marketable common stocks
which WMC considers likely to yield relatively high income in relation to
alternative investments. Debt securities are sometimes offered with warrants for
the purchase of common stock of the issuer of the debt security. These may be
purchased by the Portfolio only when the debt security meets the Portfolio's
investment criteria and the value of the warrants is relatively small. If the
warrant becomes valuable it will ordinarily be sold rather than exercised. It is
anticipated that no more than 20% of the assets of the Portfolio will be held in
convertible securities, and that no more than 10% of the assets of the Portfolio
will constitute warrants. To the extent that warrants are used, there may be
some additional investment risk, and countervailing opportunity, depending upon
the extent to which the underlying common stock price fluctuates.
Consistent with the Portfolio's investment objective, the Portfolio may
have up to 20% of its assets invested in instruments which are not investment
grade, including preferred stocks, when individually attractive yields offset
lower credit quality. (See "Risk Factors" under High Yield Portfolio.) See
Appendix A for a description of corporate bond ratings.
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. The Portfolio may also engage in
transactions involving Financial Futures Contracts and in options thereon for
hedging purposes. (See "Hedging and Income Enhancement Strategies.") In
addition, the Portfolio may purchase when-issued securities. (See "When-Issued
Securities" in the Statement of Additional Information.)
17
<PAGE> 23
Bonds and debt securities with the lowest rating of the four investment
grade categories, BBB or Baa, may have speculative characteristics. Changes in
economic conditions or other circumstances are likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
rated bonds and debt instruments.
GOVERNMENT AND QUALITY BOND PORTFOLIO
The investment objective of this Portfolio is relatively high current
income, liquidity and security of principal. The Portfolio will seek to achieve
its objective by investing in obligations issued, guaranteed or insured by the
U.S. Government, its agencies or instrumentalities ("government securities") and
in corporate debt securities rated Aa or better by Moody's or AA or better by
Standard & Poor's ("high quality corporate bonds"). It is currently anticipated
that the Portfolio will have the majority of its assets invested in government
securities since the Trust is permitted to treat each U.S. agency or
instrumentality as a separate issuer for purposes of determining compliance with
diversification standards imposed by Section 817(h) of the Code. (See "Special
Considerations.")
The Portfolio may invest in mortgage-backed securities known as Ginnie Maes
("GNMA Securities"). GNMA Securities represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. The Government
National Mortgage Association ("GNMA") guarantees the timely payment of
principal and interest on modified pass-through certificates when such payments
are due, whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. The Portfolio may also invest in
similar mortgage-backed securities with differences in timing of payment and
pool structure, and other forms of GNMA Securities which are developed from time
to time if they are consistent with the investment objective of the Portfolio.
Mortgages included in single family or multi-family residential mortgage
pools backing an issue of GNMA Securities have a maximum maturity of up to 40
years. Scheduled payments of principal and interest are made to the registered
holders of GNMA Securities (such as the Portfolio) each month. Unscheduled
prepayments of mortgages included in these pools occur as a result of payment or
refinancing by homeowners or as a result of a default. Prepayments are passed
through to the registered holders of GNMA Securities with the regular monthly
payments of principal and interest. This has the effect of reducing future
payments on such GNMA Securities.
The Portfolio will also invest in high quality corporate bonds. High
quality corporate bonds may include straight debt securities of corporate or
trust issuers which are rated in the two highest rating categories by Moody's or
Standard & Poor's or, if not rated, determined by the Sub-Adviser to be of
comparable quality. At least 80% of the Portfolio will be invested in government
securities and high quality corporate bonds, except for temporary defensive
purposes. Up to 20% of the Portfolio may be invested in bonds rated as low as A
by Moody's or Standard & Poor's or, if not rated, determined by the Sub-Adviser
to be of comparable quality. See Appendix A for a description of corporate bond
ratings.
The Portfolio may also invest in other obligations issued, guaranteed or
insured by the United States, its agencies or instrumentalities. Additionally,
the Portfolio will invest in other investments or vary its investment mix in
such a manner that the Portfolio qualifies as an underlying investment for the
Variable Contracts which it funds. (See "Special Considerations.") Some
obligations issued or guaranteed by agencies of the U.S. Government are backed
by the full faith and credit of the United States; others are backed only by the
rights of the issuer to borrow from the U.S. Treasury, such as Federal Mortgage
Association Securities. Insured obligations are generally backed by a fund
established by the agency to provide for losses. The GNMA securities acquired by
the Portfolio have historically involved little risk of loss of principal if
held to maturity. However, if interest rates fluctuate or there are prepayments
on securities purchased at a premium, the market value of the securities may
vary during the period of a Variable Contract owner's investment in the
Portfolio. Thus, in periods of fluctuating interest rates or prepayment,
Contract values may decline.
18
<PAGE> 24
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. (See "Money Market Portfolio" and
"Repurchase Agreements.")
MONEY MARKET PORTFOLIO
The investment objective of this Portfolio is current income consistent
with stability of principal. The Portfolio intends to comply with SEC
regulations under the 1940 Act applicable to money market funds. These
regulations impose certain quality, maturity and diversification guidelines on
the Portfolio's investments. Under these regulations, the Portfolio will invest
in a diversified portfolio of money market instruments maturing in 397 days or
less. Further, the Portfolio will maintain a dollar-weighted average portfolio
maturity of not more than 90 days.
The Portfolio will be invested in obligations denominated in U.S. dollars
which, at the time of investment, are "eligible securities" as defined in the
regulations. Under these regulations, an eligible security is an instrument that
is rated (or that has been issued by an issuer rated with respect to other
short-term debt of comparable priority and security) by at least two nationally
recognized statistical rating organizations ("NRSRO") (or if only one such
organization has issued a rating, by that organization) in one of the two
highest rating categories for short-term debt obligations, or an unrated
security which is determined to be of comparable quality under procedures
established by the Board of Trustees. Securities in which the Portfolio may
invest include: (i) commercial paper and other short-term obligations of U.S.
and foreign corporations issued by U.S. and foreign issuers; (ii) obligations
(including certificates of deposit, time deposits, and bankers' acceptances) of
U.S. savings and loan institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $500 million or more as shown on their last published
financial statements at the time of investment; (iii) obligations issued or
guaranteed as to principal and interest by the U.S. Government or the agencies
or instrumentalities thereof; (iv) short-term obligations issued by state and
local governmental issuers; (v) obligations of foreign governments, including
Canadian and Provincial Government and Crown Agency Obligations; (vi) securities
that have been structured to be eligible money market instruments such as
participation interests in special purpose trusts that meet the quality and
maturity requirements in whole or in part due to arrangements for credit
enhancement or for shortening effective maturity; and (vii) repurchase
agreements. Obligations which are rated in the second highest rating category by
any NRSRO will be limited to 5% of the Portfolio's total assets and further
limited by issuer to 1% of the Portfolio's total assets. Descriptions of bond
ratings are set forth in Appendix A.
In addition, the Portfolio may invest in commercial paper issued in
reliance on the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) commercial paper is restricted as to
disposition under federal securities law, and is generally sold to institutional
investors, such as the Portfolio, who agree that they are purchasing the paper
for investment purposes and not with a view to public distribution. Any resale
by the purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Portfolio through
or with the assistance of the issuer or investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Portfolio's Board
of Trustees believes that in many cases Section 4(2) commercial paper meets its
criteria for liquidity and is quite liquid and has delegated to the Adviser the
authority to make such a determination of liquidity. The Portfolio intends,
therefore, in those cases, to treat Section 4(2) commercial paper as liquid and
not subject to the investment limitation applicable to illiquid securities. (See
"Illiquid Securities" below and in the Statement of Additional Information.) The
Portfolio may also invest in when-issued securities. (See "When-Issued
Securities" in the Statement of Additional Information.)
19
<PAGE> 25
OTHER INSTRUMENTS
Certain obligations purchased by the Portfolio may be variable or floating
rate instruments, may involve a demand feature and may include variable amount
master demand notes. Variable or floating rate instruments bear interest at a
rate which varies with changes in market rates. The holder of an instrument with
a demand feature may tender the instrument back to the issuer at par value prior
to maturity.
Although the Portfolio seeks to maintain a net asset value of $1.00 per
share for purposes of purchases and redemptions, there can be no assurance that
the net asset value will not vary. (See "Net Asset Value.") The Portfolio will
be affected by general changes in interest rates resulting in increases or
decreases in the value of the obligations held by the Portfolio. The value of
the securities in the Portfolio can be expected to vary inversely to the changes
in prevailing interest rates. Thus, if interest rates have increased from the
time a security was purchased, such security, if sold, might be sold at a price
less than its purchase cost. Similarly, if interest rates have declined from the
time a security was purchased, such security, if sold, might be sold at a price
greater than its purchase cost. In either instance, if the security were held to
maturity, no loss or gain would normally be realized as a result of these
fluctuations. Redemptions of shares could require the sale of investments at a
time when such a sale might not otherwise be desirable.
REPURCHASE AGREEMENTS
All Portfolios may enter into repurchase agreements (commonly called
"repos") with banks and dealers in U.S. Government securities. Under a
repurchase agreement, a Portfolio may acquire an underlying debt instrument for
a relatively short period, subject to an obligation of the seller to repurchase
and the Portfolio to resell the instrument at a fixed price and time, thereby
determining the yield during the Portfolio's holding period. This results in a
fixed rate of return insulated from market fluctuations during such period.
Under the 1940 Act, repurchase agreements are considered loans by the
Portfolios. The total amount received on repurchase would exceed the price paid
by the Portfolio, reflecting an agreed upon rate of interest for the period from
the date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the underlying securities. The difference
between the total amount to be received upon the repurchase of the securities
and the price paid by the Portfolio upon the acquisition is accrued daily as
interest. If the institution defaults on the repurchase agreement, the Portfolio
will retain possession of the underlying securities. In the event of a default
by an institution, the Portfolio may incur certain costs in liquidating the
collateral, and could also incur a loss if the proceeds realized upon sale of
the underlying obligations are less than the repurchase price. In addition, if
bankruptcy proceedings are commenced with respect to the seller, realization on
the collateral by a Portfolio may be delayed or limited and the Portfolio may
incur additional costs. In such case, the Portfolio will be subject to risks
associated with changes in the market value of the collateral securities. In
order to limit the risks associated with entry into repurchase agreements, the
Trustees have adopted procedures to monitor and evaluate the creditworthiness of
institutions with which it proposes to engage in repos. The Portfolios will
always obtain collateral in proper form having a market value of not less than
102% of the purchase price. Such collateral will be U.S. Government obligations
and will be in the actual or constructive possession of the Portfolio.
ILLIQUID SECURITIES
Each of the Portfolios may invest no more than 10% of the value of its net
assets in securities which are illiquid, including repurchase agreements
providing for settlement in more than seven days after notice. For this purpose,
not all securities which are restricted are deemed to be illiquid. For example,
restricted securities which the Board of Trustees, or the Adviser pursuant to
guidelines established by the Board of Trustees, has determined to be
marketable, such as securities eligible for sale under Rule 144A promulgated
under the Securities Act of 1933 or certain private placements of commercial
paper issued in reliance on an exemption from the Securities Act of 1933
pursuant to
20
<PAGE> 26
Section 4(2) thereof, will not be deemed to be illiquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio to the extent that qualified institutional
buyers (as defined in Rule 144A) become for a time uninterested in purchasing
these restricted securities. In addition, a repurchase agreement which by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. Subject to the applicable limitation
on illiquid securities investments, a Portfolio may acquire securities issued by
the U.S. Government, its agencies or instrumentalities in a private placement.
See "Illiquid Securities" in the Statement of Additional Information for a
further discussion of investments in such securities.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
Each portfolio (other than the Money Market Portfolio) may each engage in
various portfolio strategies to reduce certain risks of its investments and to
attempt to enhance income. These strategies include the use of options and
futures contracts and options thereon. A Portfolio's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Investment Objective and Policies" in the Statement of Additional
Information. New financial products and risk management techniques continue to
be developed and each Portfolio may use these new investments and techniques to
the extent consistent with its investment objectives and policies.
OPTIONS TRANSACTIONS
A Portfolio may purchase and write (i.e., sell) put and call options on
securities and financial indices that are traded on securities exchanges or in
the over-the-counter market to enhance income or to hedge its portfolio. These
options may be on debt securities, aggregates of debt securities, financial
indices (e.g., Standard & Poor's 500) and U.S. Government securities and may be
traded on securities exchanges or over-the-counter. A Portfolio may write
covered put and call options to generate additional income through the receipt
of premiums, purchase put options in an effort to protect the value of a
security that it owns against a decline in market value and the simultaneous
purchase of a call option and sale of a put option with identical strikes price
and expiration dates to protect against a change in the price. A Portfolio may
also purchase put and call options to offset previously written put and call
options of the same series. See "Investment Objectives and Policies -- Call and
Put Options on Securities" in the Statement of Additional Information.
INDEXED COMMERCIAL PAPER
Each Portfolio (other than the Money Market Portfolio) may each invest in
commercial paper which is indexed to certain specific foreign currency exchange
rates. The terms of such commercial paper provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
still outstanding. A Portfolio will purchase such commercial paper with the
currency in which it is denominated and, at maturity, will receive interest and
principal payments thereon in that currency, but the amount of principal payable
by the issuer at maturity will change in proportion to the change (if any) in
the exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. A Portfolio will
establish a segregated account with respect to its investments in this type of
commercial paper and maintain in such account cash or liquid high-grade debt
obligations having a value at least equal to the aggregate principal amount of
outstanding commercial paper of this type that it holds. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables the Portfolio
to hedge (or cross-hedge) against a decline in the U.S. dollar value of
investments dominated in foreign currencies while providing an attractive money
market rate of return. See "Investment Objectives and Policies -- Foreign
Currency Exchange Transactions" in the Statement of Additional Information.
21
<PAGE> 27
FUTURES CONTRACTS AND OPTIONS THEREON
Each Portfolio (other than the Money Market Portfolio) may purchase and
sell financial futures contracts and options thereon which are traded on a
commodities exchange or board of trade for certain hedging, return enhancement
and risk management purposes in accordance with regulations of the Commodity
Futures Trading Commission. These futures contracts and related options will be
on debt securities, aggregates of debt securities, financial indices and U.S.
Government securities and include futures contracts and options thereon which
are linked to the London Interbank Offered Rate (LIBOR).
A Portfolio may not purchase or sell futures contracts and related options
if immediately thereafter the sum of the amount of initial margin deposits on
such Portfolio's existing futures and options on futures and premiums paid for
such related options would exceed 5% of the market value of the Portfolio's
total assets.
A Portfolio's successful use of futures contracts and related options
depends upon the investment adviser's ability to predict the direction of the
market and is subject to various additional risks. The correlation between
movements in the price of a futures contract and the price of the securities
being hedged is imperfect and there is a risk that the value of the securities
being hedged may increase or decrease at a greater rate than a specified futures
contract resulting in losses to a Portfolio.
A Portfolio's ability to enter into futures contracts and options thereon
may also be limited by the requirements of the Code for qualification as a
regulated investment company. See "Investment Objective and
Policies -- Financial Futures Contracts on Fixed Income
Securities -- Characteristics and Risks and Options on Financial Futures
Contracts" in the Statement of Additional Information.
SPECIAL RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
Participation in the options or futures markets involves investment risks
and transaction costs to which a Portfolio would not be subject absent the use
of these strategies. If an Adviser's prediction of movements in the direction of
the securities and interest rate markets is inaccurate, the adverse consequences
to a Portfolio may leave the Portfolio in a worse position that if such
strategies were not used. Risks inherent in the use of options and futures
contracts and options on futures contracts include (1) dependence on the
Adviser's ability to predict correctly movements in the direction of interest
rates and securities prices; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular instrument
at any time; (5) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences; and (6) the possible inability of a Portfolio
to purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for a Portfolio to sell a
portfolio security at a disadvantageous time, due to the need for a Portfolio to
maintain "cover" or to segregate securities in connection with hedging
transactions.
FORWARD COMMITMENTS
Each Portfolio may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if a Portfolio holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if a Portfolio enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of a Portfolio's other assets.
Where such purchases are made through dealers, a Portfolio relies on the dealer
to consummate the sale. The dealer's failure to do so may result in the loss to
a Portfolio of an advantageous yield or price. Although a Portfolio will
generally enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options contracts it
has entered into, a Portfolio may dispose
22
<PAGE> 28
of a commitment prior to settlement if the Sub-Adviser deems it appropriate to
do so. A Portfolio may realize short-term profits or losses upon the sale of
forward commitments.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment policies set forth above, certain additional
restrictive policies relating to the investment of assets of the Portfolios have
been adopted by the Trust. The Investment Restrictions of the Trust are deemed
fundamental policies and may not be changed without the approval of the holders
of a majority of the outstanding voting shares of each Portfolio affected, which
for this purpose and under the 1940 Act means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares. A change in
policy affecting only one Portfolio may be effected with the approval of a
majority of the outstanding shares of such Portfolio. Details as to such
policies are set forth in the Statement of Additional Information.
- --------------------------------------------------------------------------------
SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
The Code imposes certain diversification standards on the underlying assets
of Variable Contracts held in the Portfolios of the Trust. The Code provides
that a Variable Contract shall not be treated as an annuity contract or life
insurance for any period for which the investments are not adequately
diversified, in accordance with regulations prescribed by the Treasury
Department. Disqualification of the Variable Contract as an annuity contract or
life insurance would result in imposition of Federal income tax on the Contract
Owner with respect to earnings allocable to the Variable Contract prior to the
receipt of payments under the Variable Contract. The Code contains a safe harbor
provision which provides that contracts such as the Variable Contracts meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than 55% of the total assets consists of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
The Treasury Department has issued Regulations (Treas. Reg. Section
1.817-5), which establish diversification requirements for the investment
portfolios underlying variable contracts such as the Variable Contracts. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if, at the close of each calendar quarter, (i) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (ii) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (iii) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (iv) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of these
regulations all securities of the same issuer are treated as a single
investment.
The Technical and Miscellaneous Revenue Act of 1988 provides that for
purposes of determining whether or not the diversification standards imposed on
the underlying assets of variable contracts by Section 817(h) of the Code have
been met, "each United States government agency or instrumentality shall be
treated as a separate issuer."
It is intended that each Portfolio of the Trust underlying the Contracts
will be managed in such a manner as to comply with these diversification
requirements.
23
<PAGE> 29
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
THE TRUSTEES
The Trust is organized as a Massachusetts business trust. The overall
responsibility for the supervision of the affairs of the Trust vests in the
Trustees. The Trustees meet periodically to review the affairs of the Trust and
to establish certain guidelines which the Adviser and Sub-Adviser are expected
to follow in implementing the investment policies and objectives of the Trust.
SAAMCO
The Trust, on behalf of each Portfolio, has entered into Investment
Advisory and Management Agreements (the "Agreements") with SAAMCo to handle the
Trust's day-to-day affairs.
SAAMCo, located at 733 Third Avenue, New York, New York 10017-3204, is a
corporation organized in 1982 under the laws of the State of Delaware. SAAMCo is
an indirect wholly owned subsidiary of SunAmerica Inc., an investment-grade
financial services company. SAAMCo is engaged in providing investment advice and
management services to the Trust, other mutual funds and pension funds. As of
November 30, 1994, SAAMCo manages, advises and/or administers in excess of $4
billion of assets. SAAMCo provides investment advisory services, office space,
and other facilities for the management of the affairs of the Trust, and pays
all compensation of officers and Trustees of the Trust who are affiliated
persons of SAAMCo.
The annual rate of the investment advisory fees which apply to each
Portfolio, are as follows:
Foreign Securities Portfolio pays a fee of .90% of Assets per annum;
Capital Appreciation Portfolio pays a fee of .75% of Assets per annum; Growth
Portfolio pays a fee of .75% of Assets per annum; Natural Resources Portfolio
pays a fee of .75% of Assets per annum; Growth and Income Portfolio pays a fee
of .70% of Assets per annum; Strategic Multi-Asset Portfolio pays a fee of 1% of
Assets per annum; Multi-Asset Portfolio pays a fee of 1% of Assets per annum;
High Yield Portfolio pays a fee of .70% per annum on the first $250 million of
Assets and .60% per annum over $250 million of Assets; Target '98 Portfolio pays
a fee of .625% of Assets per annum; Fixed Income Portfolio pays a fee of .625%
of Assets per annum; Government and Quality Bond Portfolio pays a fee of .625%
of Assets per annum; and Money Market Portfolio pays a fee of .50% of Assets per
annum.
The investment management fees set out above are higher than those paid by
many other investment companies with similar investment objectives.
Notwithstanding the foregoing, SAAMCo has agreed, effective January 1, 1993, to
waive a portion of its fees to reflect a fee schedule based on the asset size of
a given portfolio. As a result, in certain cases, the fees actually collected
with respect to a portfolio may be less than those set forth above. More
complete information concerning the fee waivers is contained in the Statement of
Additional Information.
The term "Assets" means the average daily net assets of the Portfolio. The
Investment Advisory fees are accrued daily and paid monthly.
SAAMCo has agreed that, in the event the expenses of one or more of the
Portfolios exceeds applicable state law expense limitations, it will waive its
fees under the Investment Advisory and Management Agreements to the extent
necessary to reduce the expenses of the affected Portfolio(s) so as not to
exceed such limitation(s). No such waiver shall result in the obligation
(contingent or otherwise) of the affected Portfolio(s) to repay SAAMCo in any
fiscal year any such amounts waived in previous fiscal years. Such agreements
with respect to expense limitations do not require SAAMCo to additionally
reimburse any Portfolio in the event the waivers are insufficient to reduce such
Portfolio's expenses to the applicable limitations.
For the year ended December 31, 1994, SAAMCo received fees equal to the
following percentages of Assets: Foreign Securities Portfolio, 0.90%; Capital
Appreciation Portfolio, 0.71%; Growth Portfolio, 0.74%; Natural Resources
Portfolio, 0.75%; Growth and Income Portfolio, 0.70%; Strategic Multi-Asset
Portfolio, 1.00%; Multi-Asset Portfolio, 1.00%; High Yield Portfolio, 0.70%;
Target '98 Portfo-
24
<PAGE> 30
lio, 0.63%; Fixed Income Portfolio, 0.62%; Government and Quality Bond
Portfolio, 0.61%; and Money Market Portfolio, 0.50%.
WELLINGTON MANAGEMENT COMPANY
WMC acts as a Sub-Adviser to each Portfolio of the Trust, pursuant to
Sub-Advisory Agreements with SAAMCo to manage the investment and reinvestment of
the assets of such Portfolios. WMC is independent of SAAMCo and discharges its
responsibilities subject to the policies of the Trustees and the oversight and
supervision of SAAMCo, which pays WMC's fees.
WMC is a professional investment counseling firm which provides investment
services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of December 31, 1994,
WMC had discretionary management authority with respect to approximately $82
billion of assets.
WMC is a Massachusetts partnership of which the following persons are
managing partners: Robert W. Doran, Duncan M. McFarland and John B. Neff. The
principal business address of WMC is 75 State Street, Boston, Massachusetts
02109.
The portion of the investment advisory fees received by SAAMCo and paid to
WMC are as follows:
Foreign Securities Portfolio -- .40% per annum on the first $50 million of
Assets, .275% per annum on the next $100 million, .20% per annum on the next
$350 million, and .15% per annum over $500 million; Capital Appreciation
Portfolio -- .375% per annum on the first $50 million of Assets, .275% per annum
on the next $100 million, .20% per annum on the next $350 million, and .15% per
annum over $500 million; Growth Portfolio -- .325% per annum on the first $50
million of Assets, .225% per annum on the next $100 million, .20% per annum on
the next $350 million, and .15% per annum over $500 million; Natural Resources
Portfolio -- .35% per annum on the first $50 million of Assets, .25% per annum
on the next $100 million, .20% per annum on the next $350 million, and .15% per
annum over $500 million; Growth and Income Portfolio -- .325% per annum on the
first $50 million of Assets, .225% per annum on the next $100 million, .20% per
annum on the next $350 million, and .15% per annum over $500 million; Strategic
Multi-Asset Portfolio -- .300% per annum on the first $50 million of Assets,
.200% per annum on the next $100 million, .175% per annum on the next $350
million, and .15% per annum over $500 million; Multi-Asset Portfolio -- .250%
per annum on the first $50 million of Assets, .175% per annum on the next $100
million, .150% per annum over $150 million; High Yield Portfolio -- .30% per
annum on the first $50 million of Assets, .225% per annum on the next $100
million, .175% per annum on the next $350 million, and .15% per annum over $500
million; Target '98 Portfolio -- .225% per annum on the first $50 million of
Assets, .15% per annum on the next $50 million, .10% per annum on the next $400
million and .05% per annum over $500 million; Fixed Income Portfolio -- .225%
per annum on the first $50 million of Assets, .125% per annum on the next $50
million, and .10% per annum over $100 million; Government and Quality Bond
Portfolio -- .225% per annum on the first $50 million of Assets, .125% per annum
on the next $50 million, and .10% per annum over $100 million; and Money Market
Portfolio -- .075% per annum on the first $500 million of Assets, and .020% per
annum over $500 million.
For the year ended December 31, 1994, SAAMCo informed the Trust that WMC
received fees equal to the following percentages of daily net assets: Foreign
Securities Portfolio, 0.36%; Capital Appreciation Portfolio, 0.28%; Growth
Portfolio, 0.23%; Natural Resources Portfolio, 0.35%; Growth and Income
Portfolio, 0.33%; Strategic Multi-Asset Portfolio, 0.27%; Multi-Asset Portfolio,
0.19%; High Yield Portfolio, 0.29%; Target '98 Portfolio, 0.23%; Fixed Income
Portfolio, 0.22%; Government and Quality Bond Portfolio, 0.13%; and Money Market
Portfolio, 0.08%.
25
<PAGE> 31
PORTFOLIO MANAGEMENT
The following individuals are primarily responsible for the day-to-day
management of the particular portfolios as indicated below.
WMC's Global Equity Strategy Group, headed by Trond Skramstad, has been
responsible for managing the FOREIGN SECURITIES PORTFOLIO since 1994.
Robert D. Rands has served as the portfolio manager for the CAPITAL
APPRECIATION PORTFOLIO since its inception in 1987. Mr. Rands is a Senior Vice
President of WMC and joined the company in 1978.
WMC's Growth Investment Team, comprised of Frank V. Wisneski, Senior Vice
President; Matthew E. Megargel, Senior Vice President; and John J. Harrington,
Vice President, has been responsible for managing the GROWTH PORTFOLIO since
1995.
Ernst H. von Metzsch has served as the portfolio manager for the NATURAL
RESOURCES PORTFOLIO since October 24, 1994. Mr. von Metzsch is a Senior Vice
President, Partner and energy analyst at WMC and joined the company in 1973.
Rand L. Alexander has served as the portfolio manager for the GROWTH AND
INCOME PORTFOLIO since 1990. Mr. Alexander is a Senior Vice President of WMC and
joined the company in 1990. Prior to 1990, he was employed as a portfolio
manager and security analyst at Putnam Investment Management.
Deborah L. Allinson has served as the portfolio manager for the STRATEGIC
MULTI-ASSET PORTFOLIO since its inception in 1987, and the MULTI-ASSET PORTFOLIO
since its inception in 1987. Ms. Allinson is a Senior Vice President of WMC and
joined the company in 1972.
Catherine A. Smith has served as the portfolio manager for the HIGH YIELD
PORTFOLIO since 1992. Ms. Smith is a Senior Vice President of WMC and joined the
company in 1984.
Thomas L. Pappas has served as the portfolio manager for the TARGET '98
PORTFOLIO since 1992 and the FIXED INCOME PORTFOLIO since 1995. Mr. Pappas is a
Vice President of WMC and joined the company in 1987.
John C. Keogh has served as the portfolio manager for the MONEY MARKET
PORTFOLIO since 1992 and for the GOVERNMENT AND QUALITY BOND PORTFOLIO since
March 31, 1994. Mr. Keogh is a Senior Vice President of WMC and joined the
company in 1983.
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.
EXPENSES OF THE TRUST
In addition to the investment advisory fee, the Trust incurs expenses,
including legal, auditing and accounting expenses, Trustees' fees and expenses,
insurance premiums, brokers' commissions, taxes and governmental fees, expenses
of issue or redemption of shares, expenses of registering or qualifying shares
for sale, reports and notices to shareholders, and fees and disbursements of
custodians, transfer agents, registrars, shareholder servicing agents and
dividend disbursing agents, and certain expenses with respect to membership fees
of industry associations.
26
<PAGE> 32
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
All purchase and sale orders of securities are placed on behalf of the
Trust by WMC for all the Portfolios. If the securities in which a particular
Portfolio invests are traded primarily in the over-the-counter market, then WMC
may deal directly with the broker-dealers who make a market in the securities
involved unless better prices and execution are available elsewhere. These
brokers may also furnish brokerage and research services, including advice as to
the advisability of investing in securities, securities analysis and reports.
Broker-dealers involved in the execution of portfolio transactions on
behalf of the Trust are selected on the basis of their professional capability
and the value and quality of their services. In selecting such broker-dealers,
WMC will consider various relevant factors, including, but not limited to, the
size and type of the transaction; the nature and character of the markets in
which the security can be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
The Trust reserves the right to effect portfolio transactions through a
broker affiliated with SAAMCo, acting as agent and not as principal, provided
that any commissions, fees or other remuneration received by such broker are
within the limitations set forth in the 1940 Act and are 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 an exchange during a comparable period of time.
Subject to applicable laws and regulations, the Advisers may also consider
the willingness of particular brokers to sell the Variable Contracts or
affiliated SunAmerica mutual funds as a factor in the selection of brokers for
executing portfolio transactions on behalf of the Trust.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of the shares of each Portfolio is computed once daily
at the close of regular trading of the New York Stock Exchange ("NYSE") (which
is currently 4:00 p.m., New York time), on days the New York Stock Exchange is
open for trading which are Monday through Friday, except for New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, and other such days as may be determined from
time to time by the NYSE.
The net asset value of a share of each Portfolio is calculated by adding
the value of all securities and other assets, deducting its accrued liabilities,
and dividing the remainder by the number of shares outstanding. Except with
respect to securities held by the Money Market Portfolio, securities of each
Portfolio are valued as follows: Equity securities which are traded on domestic
stock exchanges are valued at the last sale price as of the close of business on
the day the securities are being valued, or lacking any sales, at the closing
bid price. Equity securities traded in the over-the-counter market are valued at
the closing bid price or yield equivalent as obtained from one or more dealers
that make markets in the securities. Equity securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Bonds and other fixed income securities
may be valued on the basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of such securities. The
prices provided by a pricing service may be determined without regard to bid or
last sale prices but take into account institutional size trading in similar
groups of securities and any developments related to specific securities.
Securities not priced in this manner are valued at the most recent quoted bid
price. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust. Short-term
27
<PAGE> 33
investments that mature in less than sixty (60) days are valued at amortized
cost unless the Trustees determine that amortized cost or value does not
represent fair value, in which case fair value is determined as described above.
Securities of the Money Market Portfolio are valued using the amortized
cost method. The amortized cost method initially values a security at its cost
and thereafter assumes a constant amortization to maturity of any premium or
discount regardless of market fluctuations. This method is designed to stabilize
the net asset value at $1.00 per share. The Board of Trustees will monitor
closely the stabilization of the net asset value at $1.00 per share and has
adopted procedures to facilitate such stabilization. (See the Statement of
Additional Information -- Net Asset Value.)
Securities which are traded on foreign exchanges are ordinarily valued at
the last quoted sales price available before the time when the assets are
valued. If a security's price is available from more than one foreign exchange,
the Portfolio uses the exchange that is the primary market for the security.
Values of portfolio securities primarily traded on foreign exchanges are already
translated into U.S. dollars when received from a quotation service.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Each Portfolio of the Trust intends to continue to qualify as a "Regulated
Investment Company" under certain provisions of the Code. Each Portfolio of the
Trust will be treated as a separate entity for Federal income tax purposes.
While qualified as a regulated investment company, each Portfolio of the Trust
will not be subject to Federal income taxes on net investment income and net
capital gains, if any, realized during any year provided all such net investment
income and net capital gains are distributed to its shareholders.
Dividends on the Money Market Portfolio will be declared daily and
reinvested monthly in additional full and fractional shares of the Portfolio.
Dividends and distributions consisting of substantially all net investment
income and net realized capital gains from Growth, Capital Appreciation, Foreign
Securities, Growth and Income, Fixed Income, Government and Quality Bond, High
Yield, Natural Resources, Multi-Asset, Strategic Multi-Asset and Target '98
Portfolios will be declared and reinvested at least annually in additional full
and fractional shares of the respective Portfolios.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was organized under the laws of the Commonwealth of Massachusetts
on August 26, 1983, as an unincorporated voluntary association, commonly known
as a business trust. Its offices are at 733 Third Avenue, New York, New York
10017-3204. The Trust currently consists of twelve separate investment series,
each with its own investment objective. Certain series of the Trust may not be
available in connection with a particular annuity contract.
All shares of the Trust are owned by separate accounts of the Life
Companies. Pursuant to current interpretations of the 1940 Act, the Life
Companies will solicit voting instructions from Variable Contract Owners with
respect to any matters that are presented to a vote of shareholders.
On any matter submitted to a vote of shareholders, all shares of the Trust
then issued and outstanding and entitled to vote shall be voted in the aggregate
and not by series except for matters concerning only a series. Certain matters
approved by a vote of all shareholders of the Trust may not be binding on a
Portfolio whose shareholders have not approved such matters. The holders of each
share of beneficial interest of the Trust shall be entitled to one vote for each
full share and a fractional vote for each fractional share of beneficial
interest. Shares of one series may not bear the same economic relationship to
the Trust as shares of another series.
28
<PAGE> 34
The Trustees of the Trust have been elected by the shareholders of the
Trust. The Trustees themselves have the power to alter the number and the terms
of office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration (subject to certain removal procedures)
and appoint their own successors, provided that always at least a majority of
the Trustees have been elected by the shareholders of the Trust. The voting
rights of shareholders are not cumulative, so that holders of more than 50% of
the shares voting can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect any Trustees. The
Trust is not required to hold Annual Meetings of Shareholders. The Trustees may
call Special Meetings of Shareholders for action by shareholder vote as may be
required by the Investment Company Act of 1940 or the Declaration of Trust. The
Declaration of Trust provides that shareholders can remove Trustees by a vote of
two-thirds of the vote of the outstanding shares and the Declaration of Trust
sets out the procedures to be followed.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective Portfolio and in net
assets of such Portfolio upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities. The shares of each Portfolio have no
preference, pre-emptive, conversion, exchange or similar rights, and will be
freely transferable. Under certain circumstances Trust shareholders may have a
potential liability for the obligations of the Trust.
- --------------------------------------------------------------------------------
REPORTS, INDEPENDENT ACCOUNTANTS
AND LEGAL COUNSEL
- --------------------------------------------------------------------------------
The Trust will furnish audited annual and unaudited semi-annual reports to
its shareholders. Price Waterhouse LLP, New York, New York, serves as the
independent accountants to the Trust.
The firm of Routier, Mackey and Johnson, P.C. has been selected as legal
counsel for the Trust.
- --------------------------------------------------------------------------------
DISTRIBUTION AND REDEMPTION OF SHARES; INQUIRIES
- --------------------------------------------------------------------------------
Shares are only sold to separate accounts of the Life Companies at net
asset value. Redemptions will be effected by the separate accounts to meet
obligations under the Variable Contracts. Variable Contract Owners do not deal
directly with the Trust with respect to acquisition or redemption of shares.
Inquiries regarding the Trust should be directed to P.O. Box 54299, Los
Angeles, California, 90054-0299; telephone number: 800-445-7862.
29
<PAGE> 35
- --------------------------------------------------------------------------------
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc. 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 most unlikely to impair
the fundamentally strong position of these issues. Aa -- High quality by all
standards. They are rated lower than the best quality bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
that make the long-term risks appear somewhat greater. A -- Upper medium grade
obligations. These bonds possess many favorable investment attributes. Factors
giving security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment sometime in the
future. Baa -- Medium grade obligations. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well. Ba -- Have speculative elements; future
cannot be considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Bonds in this class are characterized by
uncertainty of position. B -- Generally lack characteristics of the desirable
investment; assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. Caa -- Of
poor standing. Issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca -- Speculative in a high
degree; often in default or have other marked shortcomings. C -- Lowest rated
class of bonds; can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor's Ratings Group rates the long-term securities debt of
various entities in categories ranging from "AAA" to "D" according to quality.
AAA -- Highest rating. Capacity to pay interest and repay principal is extremely
strong. AA -- High grade. Very strong capacity to pay interest and repay
principal. Generally, these bonds differ from AAA issues only in a small degree.
A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions than debt in higher rated categories. BBB -- Regarded as
having adequate capacity to pay interest and repay principal. These bonds
normally exhibit adequate protection parameters, but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal than for debt in higher rated categories. BB, B,
CCC, CC, C -- Regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates 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.
<PAGE> 36
<TABLE>
<S> <C> <C>
- ------------------------------
- ------------------------------
- ------------------------------ Stamp
</TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CA 90054-0299
<PAGE> 37
Please forward a copy (without charge) of the Statement of Additional
Information concerning Anchor Series Trust to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: Signed:
-------------------------- -------------------------------------
<PAGE> 38
STATEMENT OF ADDITIONAL INFORMATION
ANCHOR SERIES TRUST
733 Third Avenue
New York, New York 10017-3204
(800) 858-8850
THIS IS NOT A PROSPECTUS. This Statement of Additional Information
should be read in conjunction with the Prospectus for Anchor Series
Trust, which is referred to herein.
Capitalized terms used herein but not defined have the same
meanings assigned to them in the Prospectus.
---------------------------------------
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR SHOULD KNOW BEFORE INVESTING. FOR A COPY OF THE
PROSPECTUS DATED FEBRUARY , 1996 CALL OR WRITE THE TRUST AT:
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
(800) 445-7862.
---------------------------------------
Dated: February , 1996
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . B-3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . B-3
Objectives. . . . . . . . . . . . . . . . . . . . . . . B-3
Foreign Money Market Instruments. . . . . . . . . . . . B-3
Variable and Floating Rate Instruments. . . . . . . . . B-4
Government Agencies Obligations . . . . . . . . . . . . B-4
When-Issued Securities. . . . . . . . . . . . . . . . . B-5
Illiquid Securities . . . . . . . . . . . . . . . . . . B-5
Foreign Securities. . . . . . . . . . . . . . . . . . . B-7
Call and Put Options on Securities. . . . . . . . . . . B-7
Absence of Liquid Secondary Options Market. . . . . . . B-9
Regulation of Futures Contracts and Options Thereon . . B-9
Financial Futures Contracts on Fixed Income
Securities - Characteristics and Risks . . . . . . B-10
Options on Financial Futures Contracts. . . . . . . . . B-13
Index Warrants. . . . . . . . . . . . . . . . . . . . . B-14
Stock Index Futures and Options Thereon . . . . . . . . B-15
Stock Index Futures Characteristics and Risks . . . . . B-15
Options on Stock Index Futures and Risks. . . . . . . . B-18
Limitations on Stock Index Futures and Related
Options Transactions . . . . . . . . . . . . . . . B-19
Foreign Currency Exchange Transactions. . . . . . . . . B-19
Interest Rate Swap Transactions . . . . . . . . . . . . B-21
Description of Commercial Paper Ratings . . . . . . . . B-22
Discount Bonds, Convertible Bonds and Preferred Stocks. B-22
Certain Risk Factors Relating to High-Yield
(High-Risk) Bonds. . . . . . . . . . . . . . . . . B-22
Further Information About the Target '98 Portfolio. . . B-23
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . B-24
SUNAMERICA ASSET MANAGEMENT CORP.. . . . . . . . . . . . . . B-26
Personal Securities Trading . . . . . . . . . . . . . . B-29
WELLINGTON MANAGEMENT COMPANY. . . . . . . . . . . . . . . . B-29
OFFICERS AND TRUSTEES OF THE TRUST . . . . . . . . . . . . . B-30
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . B-33
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL. . . . . . . . . . B-33
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . B-34
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . B-35
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . B-37
Foreign Securities Portfolio. . . . . . . . . . . . . . B-38
Money Market Portfolio. . . . . . . . . . . . . . . . . B-38
DIVIDENDS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . B-39
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . B-42
OWNERSHIP OF SHARES. . . . . . . . . . . . . . . . . . . . . B-42
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . B-43
</TABLE>
B-2
<PAGE> 40
THE TRUST
The Trust, organized as a Massachusetts business trust on
August 26, 1983, is an open-end management investment company. The
Trust is comprised of twelve separate Portfolios. Shares of the
Trust are issued and redeemed only in connection with investments
in and payments under variable annuity contracts and variable life
insurance policies of Anchor National Life Insurance Company, First
SunAmerica Life Insurance Company, Phoenix Mutual Life Insurance
Company and Presidential Life Insurance Company (see "The Trust" in
the Prospectus).
On December 1, 1992, the Board of Trustees of the Trust
approved a change of the names of the Aggressive Growth Portfolio
and the Aggressive Multi-Asset Portfolio to the Capital
Appreciation Portfolio and the Strategic Multi-Asset Portfolio,
respectively.
On February 16, 1995, the Board of Trustees of the Trust
approved a change of the name of the Convertible Securities
Portfolio to the Growth and Income Portfolio.
INVESTMENT OBJECTIVES AND POLICIES
Objectives
For a description of the objectives of the Portfolios, see
"Investment Objectives and Policies" in the Prospectus. The
following information is provided for those investors wishing to
have more comprehensive information than that contained in the
Prospectus.
Foreign Money Market Instruments
The Money Market Portfolio will be diversified among issuers
and among industries with the exception of the banking industry and
obligations of the U.S. Government, its agencies and
instrumentalities. The Money Market Portfolio reserves the right
to concentrate its investment in U.S. dollar denominated
obligations of foreign branches of U.S. banks, London and U.S.
branches of foreign banks, and commercial paper of foreign
corporations, when the yields available on such obligations exceed
the yields available on obligations otherwise permitted for
investment by the Portfolio and when it is believed that the
relative return from such investments compared with the relative
risk, marketability and quality of such obligations appears to
warrant such concentration. Concentration in this context means
the investment of more than 25% and up to 100% of the Portfolio's
assets. These investments will meet the quality criteria described
above, but they may present investment risks in addition to those
involved in obligations of domestic banks and corporations.
B-3
<PAGE> 41
Investment risks associated with investments in obligations of
foreign branches of U.S. banks, London and U.S. branches of foreign
banks and commercial paper of foreign corporations include future
political and economic developments, the possible imposition of
withholding taxes on interest income payable on such obligations,
the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of
other government restrictions. Generally, the foreign branches of
the U.S. banks and the London or U.S. branches of foreign banks are
subject to fewer regulatory restrictions than are applicable to
domestic banks, and foreign branches of U.S. banks may be subject
to less stringent reserve requirements than domestic banks. The
London or U.S. branches of foreign banks, the foreign branches of
U.S. banks and foreign corporations may provide less public
information than, and may not be subject to the same accounting,
auditing and financial record-keeping standards as, domestic banks.
Variable and Floating Rate Instruments
Certain obligations purchased by the Portfolios of the Trust
may be variable or floating rate instruments, involve a demand
feature and include variable amount master demand notes. Variable
or floating rate instruments bear interest at a rate which varies
with changes in market rates. The holder of an instrument with a
demand feature may tender the instrument back to the issuer at par
prior to maturity.
A variable amount master demand note is issued pursuant to a
written agreement between the issuer and the holder, its amount may
be increased by the holder or decreased by the holder or issuer, it
is payable on demand and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must be
equivalent to the long-term bond or commercial paper ratings
applicable to permitted investment for the Money Market Portfolio.
The Sub-Adviser will monitor on an ongoing basis the earning power,
cash flow and liquidity ratios of the issuers of such instruments,
and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
Government Agencies Obligations
All Portfolios may invest, to varying degrees, in government
obligations. Obligations issued by the U.S. Treasury are backed by
the full faith and credit of the U.S. Government. Obligations
issued by governmental agencies may be supported by varying levels
of guarantee as to repayment of principal and interest.
Agencies of the United States Government include, among
others, Export Import Bank of the United States, Farmers Home
Administration, Federal Farm Credit Bank, Federal Housing
Administration, Government National Mortgage Association, Maritime
Administration, Small Business Administration and the Tennessee
B-4
<PAGE> 42
Valley Authority. The Portfolios may purchase securities
guaranteed by the Government National Mortgage Association which
may represent participations in Veterans Administration and Federal
Housing Administration backed mortgage pools. Obligations of
instrumentalities of the United States Government include
securities issued by, among others, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Loan Mortgage
Association and the United States Postal Service. Some of these
securities are supported by the full faith and credit of the United
States Treasury (e.g., Government National Mortgage Association),
others are supported by the right of the issuer to borrow from the
Treasury (e.g., Federal Farm Credit Bank) and still others are
supported only by the credit of the instrumentality (e.g., Federal
National Mortgage Association). Guarantees of principal by
agencies or instrumentalities of the U.S. Government may be
guarantees solely of payment at the maturity of the obligation so
that in the event of a default prior to maturity there might be no
market and thus no means of realizing on the obligation prior to
maturity.
When-Issued Securities
Each Portfolio, other than the Money Market Portfolio, may
invest in securities issued on a when-issued or delayed delivery
basis at the time the purchase is made. When-issued or delayed-delivery
transactions arise when securities are purchased or sold
by a Portfolio with payment and delivery taking place a month or
more in the future in order to secure what is considered to be an
advantageous price and yield to the Portfolio at the time of
entering into the transaction. Each Portfolio generally would not
pay for such securities or start earning interest on them until
they are issued or received. However, when a Portfolio purchases
debt obligations on a when-issued basis, it assumes the risks of
ownership, including the risk of price fluctuation, at the time of
purchase, not at the time of receipt. Failure of the issuer to
deliver a security purchased by a Portfolio on a when-issued basis
may result in a Portfolio's incurring a loss or missing an
opportunity to make an alternative investment. When a Portfolio
enters into a commitment to purchase securities on a when-issued
basis, it establishes a segregated account with its custodian
consisting of cash or liquid high-grade debt securities equal to
the amount of the Portfolio's commitment, which is valued at fair
market value. If on any day the market value of this segregated
account falls below the value of a Portfolio's commitment, the
Portfolio will be required to deposit additional cash or qualified
securities into the account equal to the value of the Portfolio's
commitment. When the securities to be purchased are issued, a
Portfolio will pay for the securities from available cash, from the
sale of securities in the segregated account, from sales of other
securities and/or, if necessary, from the sale of the when-issued
securities themselves, although this is not ordinarily expected.
B-5
<PAGE> 43
Securities purchased on a when-issued basis are subject to the risk
that yields available in the market, when delivery takes place, may
be higher or lower than the rate to be received on the securities
a Portfolio has committed to purchase. After a Portfolio is
committed to purchase when-issued securities, but prior to the
issuance of the securities, it is subject to adverse changes in the
value of these securities based upon changes in interest rates, as
well as changes based upon the public's perception of the issuer
and its creditworthiness. Sale of securities in the segregated
account or other securities owned by a Portfolio and when-issued
securities may cause the realization of a capital gain or loss.
Illiquid Securities
Each of the Portfolios may invest no more than 10% of its net
assets, determined as of the date of purchase, in illiquid
securities including repurchase agreements which 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 which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days.
Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period. Securities which have not
been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from
the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional
expense and delay. There 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.
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
B-6
<PAGE> 44
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
Portfolios' Sub-Adviser 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
Sub-Adviser 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).
The Money Market, Multi-Asset, Strategic Multi-Asset and
Growth and Income Portfolios may invest in commercial paper issued
in reliance on the so-called private placement exemption from
registration which is afforded by Section 4(2) of the Securities
Act ("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the federal securities laws in that any resale
must similarly be made in an exempt transaction. Section 4(2)
paper is normally resold to other institutional investors through
or with the assistance of investment dealers who make a market in
Section 4(2) paper, thus providing liquidity. Section 4(2) paper
that is issued by a company that files reports under the Securities
Exchange Act of 1934 is generally eligible to be sold in reliance
on the safe harbor of Rule 144A described above. The Money Market,
Multi-Asset and Strategic Multi-Assets Portfolios' 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
Portfolios' 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.
B-7
<PAGE> 45
Foreign Securities
The Foreign Securities, Growth and Income, Growth, Capital
Appreciation, Natural Resources, Multi-Asset, and Strategic Multi-Asset
Portfolios may invest in foreign debt and equity securities.
The High Yield and Target '98 Portfolios may invest in foreign debt
securities.
Investment in securities issued by companies whose principal
business activities are outside the United States may involve
significant risks not present in domestic investments. For
example, there is generally less publicly available information
about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws.
Foreign issuers are generally not bound by uniform accounting,
auditing, and financial reporting requirements and standards of
practice comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible
adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Portfolios, political or financial
instability or diplomatic and other developments which could affect
such investments. Further, economies of particular countries or
areas of the world may differ favorably or unfavorably from the
economy of the United States.
It is anticipated that in most cases the best available market
for foreign securities will be on exchanges or in over-the-counter
markets located outside of the United States. Foreign stock
markets, while growing in volume and sophistication, are generally
not as developed as those in the United States, and securities of
some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In addition, foreign brokerage
commissions are generally higher than commissions on securities
traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of
securities exchanges, brokers, and listed companies than in the
United States.
Call and Put Options on Securities
The Growth, Capital Appreciation, Growth and Income, Fixed
Income, High Yield, Multi-Asset, Strategic Multi-Asset and Natural
Resources Portfolios may write covered call options to attempt to
realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. The Portfolios do not
presently intend to write put options but may purchase put and call
options. The Portfolios intend to use covered call options both to
increase return on the securities of the Portfolios and for
defensive or hedging purposes. It is anticipated that the
maximum percentage of the Portfolios' securities subject to options
B-8
<PAGE> 46
primarily for income purposes will be 30%, that the maximum
percentage used primarily for defensive and hedging strategies will
be 50% and that in no event will the aggregate exceed the latter
percentage.
A call option is a short-term contract (typically having a
duration of nine months or less). A call option gives the
purchaser, in exchange for a premium paid, the right for a
specified period of time to purchase the securities subject to the
option at a specified price (the "exercise price" or "strike
price"). The writer of a call option, in return for the premium,
has the obligation, upon exercise of the option, to deliver,
depending upon the terms of the option contract, the underlying
securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When a Portfolio writes a call
option, the Portfolio gives up the potential for gain on the
underlying securities or currency in excess of the exercise price
of the option during the period that the option is open.
A put option gives the purchaser, in return for a premium
paid, the right for a specified period of time, to sell the
securities subject to the option to the writer of the put at the
specified exercise price. The writer of the put option, in return
for the premium, has the obligation, upon exercise of the option,
to acquire the securities underlying the option at the exercise
price. The Portfolio might, therefore, be obligated to purchase
the underlying securities for more than their current market price.
A call option is "covered" if the Portfolio owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian). A call option is
also covered if the Portfolio holds on a share-for-share basis a call on the
same security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written if the difference
is maintained by the Portfolio in cash, Treasury bills or other high grade
short-term obligations in a segregated account with its custodian, or else
holds on a share-for-share basis a put on the same security as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written.
The premium paid by the purchaser of an option will be
determined by, among other things, the relationship of the exercise
price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand, and
interest rates.
The writer of an option wishing to terminate a position may
effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously sold.
B-9
<PAGE> 47
The effect of the purchase is that the writer's position will be
canceled by the clearing corporation. However, a writer may not
effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, an investor who is the holder of
an option may liquidate a position by effecting a "closing sale
transaction." This is accomplished by selling an option of the
same series as the option previously purchased.
There is no guarantee that either a closing purchase or a
closing sale transaction can be effected. Effecting a closing
transaction in the case of a written call option will permit the
Portfolio to write another call option on the underlying security
with either a different exercise price or expiration date or both.
Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the
options to be used for other Portfolio investments. If the
Portfolio desires to sell a particular security on which it has
written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.
The Portfolio will realize a profit from a closing transaction
if the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to
purchase the option. Conversely, the Portfolio will realize a loss
from a closing transaction if the price of the transaction is more
than the premium received from writing the option or is less than
the premium paid to purchase the option. Because increases in the
market price of a call option will generally reflect increases in
the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned
by the Portfolio.
An option position may be closed out on an exchange which
provides a secondary market for an option of the same series.
Although the Portfolio will generally purchase or write those
options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time,
and for some options no secondary market on an exchange may exist.
In such event it might not be possible to effect closing
transactions in particular options, with the result that a
Portfolio would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise
of call options and upon the subsequent disposition of underlying
securities acquired through the exercise of call options. If the
Portfolio, as a covered call option writer, is unable to effect a
closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until a closing purchase
transaction can be executed. See below for reasons why a liquid
secondary options market may not exist.
B-10
<PAGE> 48
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation,
based on forecasts provided by the U.S. Exchanges, believes that
its facilities are adequate to handle the volume of reasonably
anticipated options transactions, and such exchanges have advised
such clearing corporation that they believe their facilities will
also be adequate to handle reasonable anticipated volume.
Absence of Liquid Secondary Options Market
Reasons for the absence of a liquid secondary market on an
options exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operation on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange
(or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued
by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
Regulation of Futures Contracts and Options Thereon
The use of futures contracts and options thereon by the
Portfolios is subject to regulation by various governmental bodies,
including the Securities and Exchange Commission and the Commodity
Futures Trading Commission ("CFTC"). Each of the Portfolios has
represented to the CFTC that it will use futures contracts and
options on futures contracts in bona fide hedging transactions and
under other circumstances permitted by the CFTC, provided that, for
non-hedging transactions, it will not enter into futures contracts
or options thereon for which the sum of the initial margin deposits
on futures contracts and related options and premiums paid for
related options exceed 5% of the fair market value of a Portfolio's
assets.
Financial Futures Contracts on Fixed Income Securities -
Characteristics and Risks
B-11
<PAGE> 49
Each Portfolio (other than the Money Market Portfolio) may
enter into contracts for the future delivery of fixed income
securities ("Financial Futures Contracts"). This investment
technique will be used to hedge (i.e., to endeavor to protect)
against anticipated future changes in interest rates or other
market factors which otherwise might adversely affect the value of
each Portfolio's securities.
A "sale" of a Financial Futures Contract means entering into
a contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. A
"purchase" of a Financial Futures Contract means entering into a
contractual obligation to acquire the securities at a specified
price on a specified date. Typically on a daily basis, adjustments
are made to recognize differences in value arising from the
delivery of securities with a different interest rate than that
specified in the contract. In some cases, securities called for by
a Financial Futures Contract may not have been issued at the time
the contract was written.
Unlike the sale or purchase of a fixed income security by a
Portfolio, no price is paid or received by the Portfolio upon the
purchase or sale of a Financial Futures Contract. Initially, the
Portfolio will be required to deposit with the Trust's Custodian,
State Street Bank and Trust Company, an amount of cash or U.S.
Treasury obligations equal to a percentage of the contract amount.
This amount is known as initial margin. The nature of initial
margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract
assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the
underlying fixed income security fluctuates making the long and
short positions in the futures contract more or less valuable, a
process known as marking to market. For example, when the
Portfolio has purchased a Financial Futures Contract and the price
of the underlying fixed income security has risen, that position
will have increased in value and the Portfolio will receive from
the broker a variation margin payment equal to that increase in
value. Conversely, where the Portfolio has purchased a Financial
Futures Contract and the price of the underlying fixed income
security has declined, the position would be less valuable and the
Portfolio would be required to make a variation margin payment to
the broker. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking
an opposite position in the futures contract. During the time the
Portfolio has entered into such Financial Futures Contract the
B-12
<PAGE> 50
Portfolio will maintain in a segregated account with its custodian,
liquid assets at least equal to the value of the contract.
There are several risks in connection with the use of
Financial Futures Contracts by a Portfolio as a hedging device.
One risk arises because of the imperfect correlation between
movements in the price of the Financial Futures Contract and
movements in the price of the securities which are the subject of
the hedge. The price of the Financial Futures Contract may move
more than or less than the price of the securities being hedged.
If the price of the Financial Futures Contract moves less than the
price of the securities which are the subject of the hedge, the
hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the
Portfolio would be in a better position than if it had not hedged
at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by
the losses on the futures position. If the price of the futures
contract moves more than the price of the securities being hedged,
the Portfolio will experience either a loss or a gain on the
futures position which will not be completely offset by movements
in the price of the securities being hedged. Conversely, the
Portfolio may buy or sell fewer Financial Futures Contracts if the
historical volatility of the price of the Financial Futures
Contracts being hedged is more than the historical volatility of
the securities.
Where futures contracts are purchased to hedge against a
possible increase in the price of fixed income securities before a
Portfolio is able to invest its cash (or cash equivalents) in fixed
income securities in an orderly fashion, it is possible that the
market may decline instead; if the Portfolio then concludes not to
invest in fixed income securities at that time because of concern
as to possible further market decline or for other reasons, the
Portfolio will realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
Although Financial Futures Contracts by their terms call for
the actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the contract
without having to make or take delivery of the security. The
offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange, an
identical Financial Futures Contract calling for delivery in the
same month. Such a transaction, which is effected through a member
of an exchange, cancels the obligation to make or take delivery of
the securities. All transactions in the futures market are made,
offset or fulfilled through a clearing house associated with the
exchange on which the contracts are traded.
A Portfolio may purchase Financial Futures Contracts in
anticipation of a significant market advance (for example due to a
B-13
<PAGE> 51
decline in interest rates). The purchase of a Financial Futures
Contract affords a hedge against not participating in such advance
at a time when the Portfolio is not fully invested. Such purchase
of a futures contract would serve as a temporary substitute for the
purchase of individual fixed income securities which may then be
purchased in an orderly fashion. As such purchases are made, an
equivalent amount of Financial Futures Contracts would be
terminated by offsetting sales. Similarly Financial Futures
Contracts may be purchased to maintain the desired percentage of
the Portfolio invested in fixed income securities in the event of
a large cash flow into the Portfolio. As the cash flow is invested
in individual fixed income securities an equivalent amount of
Financial Futures Contracts would be sold.
A Portfolio may sell Financial Futures Contracts in a general
market decline (for example due to an increase in interest rates)
that may adversely affect the aggregate market value of the fixed
income securities held in the Portfolio or in anticipation of such
a decline in aggregate market value. To the extent that changes in
the Portfolio's market value correlate with the changes in the
price of a given security, the sale of futures contracts on that
fixed income security would substantially reduce the risk to the
Portfolio of a market decline and, by so doing, provide an
alternative to the liquidation of fixed income securities positions
in the Portfolio with resultant transaction costs. In the event of
large cash redemptions, the Portfolio may sell an equivalent amount
of Financial Futures Contracts to maintain the desired percentage
of the Portfolio invested in fixed income securities. This would
facilitate an orderly sale of individual securities and, as such
sales were made, an equivalent amount of Financial Futures
Contracts would be terminated.
A Portfolio will incur brokerage fees when it purchases or
sells Financial Futures Contracts, and it will be required to
maintain margin deposits. In addition, Financial Futures Contracts
entail risks. Although the Trustees believe that use of such
contracts will benefit the Portfolios, if investment judgment about
the general direction in interest rates is incorrect, the overall
performance may be poorer than if such contracts had not been used.
One risk in employing Financial Futures Contracts to protect
against cash market price volatility is the prospect that futures
prices will correlate imperfectly with the behavior of cash prices.
The ordinary spreads between prices in the cash and futures market
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 market 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 market could be
reduced, thus producing distortion. Third, from the point of view
B-14
<PAGE> 52
of speculators, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market.
Therefore increased participation by speculators in the futures
market may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general interest
trends may still not result in a successful transaction. Also,
under certain conditions it may not be possible for the Portfolio
to make closing purchase or sale transactions in Financial Futures
Contracts due to the potential absence of a secondary market.
Positions in Financial Futures Contracts may be closed out
only on an exchange or board of trade which provides a secondary
market for such futures. Although each Portfolio intends to
purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures
position, and in the event of price movements causing adverse
changes in the value of the futures position, the Portfolio would
continue to be required to make daily cash payments of variation
margin. In such circumstances, an increase in the price of the
fixed income securities, if any, may partially or completely offset
losses on the futures contract. However, there is no guarantee
that the price of the fixed income securities will, in fact,
correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
Successful use of Financial Futures Contracts by a Portfolio
is also subject to the ability to correctly predict movement in the
direction of the market. For example, if the Portfolio has hedged
against the possibility of a decline in the market value of its
fixed income securities and fixed income security prices increased
instead, the Portfolio will lose part or all of the benefit of the
increased value of its fixed income securities which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Portfolio has insufficient
cash, it may have to sell fixed income securities to meet the daily
variation margin requirements. Such sales of fixed income
securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
A Portfolio will limit use of futures contracts so that the
value of all futures contracts will not exceed 30% of its total
assets. With the assistance of the Custodian, a segregated asset
account will be maintained consisting of cash or cash equivalent
securities in an amount that will cover obligations with respect to
Financial Futures Contracts.
Options on Financial Futures Contracts
B-15
<PAGE> 53
Each Portfolio (other than the Money Market Portfolio) may
purchase and write options on Financial Futures Contracts which are
traded on an exchange, in order to hedge against adverse price
movements, and enter into closing transactions with respect to such
options to terminate an existing position. An option on a
Financial Futures Contract gives the purchaser the right, in return
for the premium paid, to assume a position in a Financial Futures
Contract (a long position if the option is a call and a short
position if the option is put) at a specified exercise price at any
time during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the Financial
Futures Contract at the time of exercise exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of
the option on the Financial Futures Contract. Writing a call
option would provide a partial hedge against declines in the value
of the fixed income securities the Portfolio owns (but would also
limit potential capital appreciation in the fixed income
securities.) In addition, writing an option would provide a
Portfolio with income in the form of the option premium.
The purchase of protective put options on a Financial Futures
Contract is analogous to the purchase of protective puts on
individual fixed income securities, where a level of protection is
sought below which no additional economic loss would be incurred by
the Portfolio. Put options on Financial Futures Contracts may also
be purchased to hedge a portfolio of fixed income securities.
The purchase of a call option on a Financial Futures Contract
represents a means of obtaining temporary exposure to anticipated
increases in the price of fixed income securities (for example due
to decreases in interest rates) at limited risk. It is analogous
to the purchase of a call option on an individual fixed income
security which can be used as a substitute for a position in the
security itself. Depending on the pricing of the option compared
to either the price of the future upon which it is based, or the
price of the underlying fixed income security itself, it may be
less risky than the ownership of the Financial Futures Contract or
the underlying security. Like the purchase of a Financial Futures
Contract, the Portfolio would purchase a call option on a Financial
Futures Contract to hedge against an increase in the price of fixed
income securities (for example, due to a decline in interest rates)
when the Portfolio is not fully invested.
As with options on securities, the holder of an option may
terminate his position by selling an identical option. There is,
however, no guarantee that such closing transactions can be
effected. Positions in options on Financial Futures Contracts may
be closed out only on an exchange or board of trade which provides
a secondary market for such options. Although each Portfolio
B-16
<PAGE> 54
intends to purchase or sell options only on exchanges or boards of
trade where there appears to be an active secondary market, there
can be no assurance that a liquid secondary market will exist for
any particular option or at any particular time. In such event, it
may not be possible to close out an option position, and if the
Portfolio was the writer of the option, in the event of price
movements causing adverse changes in the value of the option
position, the Portfolio would continue to be required to make daily
cash payments of variation margin.
The ability to establish and close out positions on such
options will be subject to the availability of a liquid secondary
market. A Portfolio will not purchase options on Financial Futures
Contracts on any exchange unless and until, in the opinion of WMC,
the market for such options has developed sufficiently that the
risks in connection with options on Financial Futures Contract
transactions are not greater than the risks in connection with
Financial Futures Contract transactions. Compared to the use of
Financial Futures Contracts, the purchase of options on Financial
Futures Contracts involves less potential risk to the Portfolio
because the maximum amount at risk is the premium paid for the
option (plus transaction costs). However, there may be
circumstances when the use of an option on a Financial Futures
Contract would result in a loss to the Portfolio when the use of a
Financial Futures Contract would not, such as when there is no
movement in the level of interest rates.
Index Warrants
A Portfolio may purchase put warrants and call warrants whose
values vary depending on the change in the value of one of more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying index
rises above the exercise price of the index warrant, the holder of
a call warrant will be entitled to receive a cash payment from the
issuer upon exercise based on the difference between the value of
the index and the exercise price of the warrant; if the value of
the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon the
exercise based on the difference between the exercise price of the
warrant and the value of the index. The holder of a warrant would
not be entitled to any payments from the issuer at any time when,
in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put
warrant, the exercise price is less than the value of the
underlying index. If a Portfolio were not to exercise an index
warrant prior to its expiration, then the Portfolio would lose the
purchase price paid for the warrant.
B-17
<PAGE> 55
A Portfolio will normally use index warrants in a manner
similar to its use of options on securities indices. The risk of
a Portfolio's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by
the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although a Portfolio will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. To the extent such an investment is deemed to be illiquid
by the Sub-Adviser, it will be subject to the Portfolio's 10%
limitation on illiquid investments. In addition, the terms of
index warrants may limit a Portfolio's ability to exercise the
warrants at such time, or in such quantities, as a Portfolio would
otherwise wish to do.
Stock Index Futures and Options Thereon
Each Portfolio (other than the Money Market Portfolio) may
purchase and sell stock index futures contracts and options thereon
as a hedge against changes in market conditions in accordance with
the strategies more specifically described below. Each of these
Portfolios presently intends to limit use of futures contracts so
that the aggregate market value of all futures contracts does not
exceed 30% of the Portfolio's total assets.
Stock Index Futures Characteristics and Risks
A Portfolio may purchase stock index futures contracts in
anticipation of a significant market or market sector advance. The
purchase of a stock index futures contract affords a hedge against
not participating in such advance at a time when the Portfolio is
not fully invested. Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual
stocks which may then be purchased in a orderly fashion. As such
purchases are made, an equivalent amount of stock index futures
contracts would be terminated by offsetting sales. Similarly stock
index futures contracts may be purchased to maintain the desired
percentage of the Portfolios invested in stocks in the event of a
large cash flow into the Portfolio. As cash flow is invested in
individual stocks an equivalent amount of stock index futures
contracts would be sold.
A Portfolio may sell stock index futures contracts in
anticipation of or in a general market or market sector decline
that may adversely affect the aggregate market value of the
securities held in the Portfolio. To the extent that changes in
the Portfolio's market value correlate with changes in a given
stock index, the sale of futures contracts on that index would
substantially reduce the risk to the Portfolio of a market decline
B-18
<PAGE> 56
and, by so doing, provides an alternative to the liquidation of
securities positions in the Portfolio with resultant transaction
costs. In the event of large cash redemptions, the Portfolio may
sell an equivalent amount of stock index futures contracts to
maintain the desired percentage of the Portfolio invested in
stocks. This would facilitate an orderly sale of individual stocks
and, as such sales were made, an equivalent amount of stock index
futures contracts would be terminated.
A Portfolio will incur brokerage fees when it purchases or
sells stock index futures contracts, and it will be required to
maintain margin deposits. In addition, stock index futures
contracts entail risks. Although the Trustees believe that use of
such contracts will benefit the Portfolios, if investment judgment
about the general direction in equity prices is incorrect, the
overall performance may be poorer than if such contracts had not
been used.
Currently, stock index futures contracts can be purchased or
sold with respect to several indices, including the Standard &
Poor's 500 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Composite Stock Index on the Kansas
City Board of Trade.
Unlike the sale or purchase of a security by a Portfolio, no
price is paid or received by the Portfolio upon the purchase or
sale of a stock index futures contract. Initially, the Portfolio
will be required to deposit with the Trust's Custodian an amount of
cash or U.S. Treasury bills equal to a percentage of the contract
amount. This amount is known as initial margin. The nature of
initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin
does not involve the borrowing of funds by the customer to finance
the transactions. Rather, the initial margin is in the nature of
performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract
assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the
underlying stock index fluctuates making the long and short
positions in the futures contract more or less valuable, a process
known as marking to market. For example, when the Portfolio has
purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased
in value and the Portfolio will receive from the broker a variation
margin payment equal to the increase in value of the position.
Conversely, where the Portfolio has purchased a stock index futures
contract and the price of the underlying stock index has declined,
the position would be less valuable and the Portfolio would be
required to make a variation margin payment to the broker. At any
time prior to expiration of the futures contract, the Portfolio may
B-19
<PAGE> 57
elect to close the position by taking an opposite position which
will operate to terminate the Portfolio position in the futures
contract.
There are several risks in connection with the use of stock
index futures in a Portfolio as a hedging device. One risk arises
because of the imperfect correlation between movements in the price
of the stock index future and movements in the price of the
securities which are the subject of the hedge. The price of the
stock index future may move more than or less than the price of the
securities being hedged. If the price of the stock index future
moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in a unfavorable
direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be
partially offset by the losses on the futures position. If the
price of the futures contract moves more than the price of the
securities being hedged, the Portfolio will experience either a
loss or a gain on the futures position which will not be completely
offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation
of movements in the price of securities being hedged and movements
in the price of the stock index futures, the Portfolio may buy or
sell stock index futures contracts in a greater dollar amount than
the dollar amount of securities being hedged if the historical
volatility of the prices of such securities has been greater than
the historical volatility of the futures contract. Conversely, the
Portfolio may buy or sell fewer stock index futures contracts if
the historical volatility of the price of the securities being
hedged is less than the historical volatility of the futures
contract.
Where futures are purchased to hedge against a possible
increase in the price of stock before the Portfolio is able to
invest its cash (or cash equivalents) in stock (or options) in an
orderly fashion, it is possible that the market may decline
instead; if the Portfolio then concludes not to invest in stock or
options at that time because of concern as to possible further
market decline or for other reasons, the Portfolio will realize a
loss on the futures contract that is not offset by a reduction in
the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
stock index futures contract and the portion of the Portfolio being
hedged, the price of stock index futures may not correlate
perfectly with movement in the stock index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit and maintenance
B-20
<PAGE> 58
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship
between the index and futures markets. Secondly, from the point of
view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because
of the imperfect correlation between movements in the stock index
futures, a correct forecast of general market trends may still not
result in a successful hedging transaction over a very short time
frame.
Positions in stock index futures may be closed out only on an
exchange or board of trade which provides a secondary market for
such futures. Although each Portfolio intends to purchase or sell
futures only on exchanges or boards of trade where there appears to
be an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for
any particular contract or at any particular time. In such event
it may not be possible to close a futures position, and in the
event of adverse price movements, the Portfolio would continue to
be required to make daily cash payments of variation margin. In
such circumstances, an increase in the price of the securities, if
any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that
the price of the securities will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to
losses on a futures contract.
The Portfolios intend to purchase and sell futures contracts
on the stock index for which they can obtain the best price with
consideration also given to liquidity and the correlation of the
index to the particular securities being hedged.
Successful use of stock index futures by a Portfolio is also
subject to the ability to predict correctly movements in the
direction of the market. For example, if the Portfolio has hedged
against the possibility of a decline in the market adversely
affecting stocks held in its Portfolio and stock prices increase
instead, the Portfolio will lose part or all of the benefit of the
increased value of its stocks which it has hedged because it will
have offsetting losses in its futures positions. In addition, in
such situations, if the Portfolio has insufficient cash, it may
have to sell securities to meet the daily variation margin
requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when
it may be disadvantageous to do so.
Options on Stock Index Futures and Risks
B-21
<PAGE> 59
In connection with the Portfolios' hedging strategies, each
Portfolio (other than the Money Market Portfolio) may purchase and
write options on stock index futures which are traded on a U.S.
exchange or board of trade, in order to hedge against adverse price
movements, and enter into closing transactions with respect to such
options to terminate an existing position. Options on stock index
futures are similar to options on stocks except that an option on
a stock index future gives the purchaser the right, in return for
the premium paid, to assume a position in a stock index futures
contract (a long position if the option is a call and short
position if the option is put), rather than to purchase or sell
stock, at a specified exercise price at any time during the period
of the option. The purchase of protective put options on a stock
index futures contract is analogous to the purchase of protective
puts on individual stocks, where a level of protection is sought
below which no additional economic loss wold be incurred by the
Portfolio. Put options on stock index futures may also be
purchased to hedge a Portfolio of stocks. Writing a call option on
stock index futures would provide a partial hedge against declines
in the value of the securities the Portfolio owns (but would also
limit potential capital appreciation in the securities). In
addition, writing an option would provide a Portfolio with income
in the form of the option premium.
The purchase of a call option on a stock index future
represents a means of obtaining temporary exposure to anticipated
market appreciation at limited risk. It is analogous to the
purchase of a call option on an individual stock, which can be used
as a substitute for a position in the stock itself. Depending on
the pricing of the option compared to either the price of the
futures contract upon which it is based, or the price of the
underlying stock index itself, it may be less risky than the
ownership of the stock index futures or the underlying stocks.
Like the purchase of a stock index future, the Portfolio would
purchase a call option on a stock index future to hedge against a
market advance when the Portfolio is not fully invested.
Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by
which the market price of the stock index futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the stock index
future.
As with options on securities, the holder of an option may
terminate his position by selling an identical option. There is,
however, no guarantee that such closing transactions can be
effected. Positions in options on stock index futures contracts
may be closed out only on an exchange or board of trade which
provides a secondary market for such options. Although each
B-22
<PAGE> 60
Portfolio intends to purchase or sell options only on exchanges or
boards of trade where there appears to be an active secondary
market, there can be no assurance that a liquid secondary market
will exist for any particular option or at any particular time. In
such event, it may not be possible to close out an option position,
and, if the Portfolio was the writer of the option, in the event of
price movements causing adverse changes in the value of the option
position, the Portfolio would continue to be required to make daily
cash payments of variation margin.
The ability to establish and close out positions on such
options will be subject to the availability of a liquid secondary
market. A Portfolio will not purchase options on stock index
futures on any exchange unless and until, in the opinion of WMC,
the market for such options has developed sufficiently that the
risks in connection with options on futures transactions are not
greater than the risks in connection with stock index futures
transactions. Compared to the use of stock index futures, the
purchase of options on stock index futures contracts involves less
potential risk to the Portfolio because the maximum amount at risk
is the premium paid for the options (plus transactions costs).
However, there may be circumstances when the use of an option on a
stock index future would result in a loss to the Portfolio when the
use of a stock index future would not, such as when there is no
movement in the level of the index.
Limitations on Stock Index Futures and Related Options Transactions
Each Portfolio authorized to invest in these instruments will
not engage in transactions in stock index futures contracts or
related options for speculation but only as a hedge against changes
resulting from market conditions in the values of securities held
in the Portfolio or which it intends to purchase and where the
transactions are economically appropriate to the reduction of risks
inherent in the ongoing management of the Portfolio. Each
Portfolio authorized to invest in these instruments presently
intends to limit its transactions so that the aggregate market
value of all futures contracts does not exceed 30% of the
Portfolio's total assets. In instances involving the purchase of
stock index futures contracts by those Portfolios, an amount of
cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the
Portfolio's Custodian or in a margin account with a broker to
collateralize the position and thereby ensure that the use of such
futures is unleveraged. (See "Stock Index Futures and Options
Thereon" for the Portfolios authorized to purchase and sell stock
index futures contracts and options.)
Foreign Currency Exchange Transactions
Since investments in companies whose principal business
activities are located outside of the United States will frequently
B-23
<PAGE> 61
involve currencies of foreign countries, and since assets of
certain Portfolios may temporarily be held in bank deposits in
foreign currencies during the completion of investment programs,
the value of the assets of a Portfolio as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. Although
the Portfolio values its assets daily in terms of U.S. dollars, it
does conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market or through entering into contracts to
purchase or sell foreign currencies at a future date (i.e. a
"forward foreign currency" contract or "forward" contract). It
will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange
should the Portfolio desire to resell that currency to the dealer.
The Portfolios do not intend to speculate in foreign currency
exchange rates or forward contracts, but they are permitted to make
prudent investments.
A forward contract involves an obligation to purchase or 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 of the contract. These contracts are
traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no
commissions are charged for trades.
The Portfolios may enter into forward contracts only under two
circumstances. First, when a Portfolio enters into a contract for
the purchase or a sale of security denominated in a foreign
currency, it may purchase or sell, for a fixed amount of U.S.
dollars, the amount of foreign currency involved in the underlying
security transaction. The Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received.
Second, when the Sub-Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against
the U.S. dollar it may enter into a forward contract to sell, for
a fixed amount of U.S. dollars, the amount of foreign currency
approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the
B-24
<PAGE> 62
securities involved will not generally be possible since the future
value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date
it matures. The projection of short-term hedging strategy is
highly uncertain. The Portfolios will not enter into such forward
contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate a Portfolio to deliver
an amount of foreign currency in excess of the value of its
securities or other assets denominated in that currency. Under
normal circumstances, consideration of the prospect for currency
parities will be incorporated in the longer term investment
decisions made with regard to overall diversification strategies.
However, it is important to have the flexibility to enter into such
forward contracts when the best interests of the Portfolio will be
served. The Custodian will segregate cash or liquid equity or debt
securities of the Portfolio in an amount not less that the value of
the Portfolio's total assets committed to the consummation of
forward contracts entered into under the second circumstance, as
set forth above. If the value of the securities declines,
additional cash or securities will be segregated on a daily basis
so that the value will equal the amount of the Portfolio's
commitments with respect to such contracts.
The Portfolios generally will not enter into a forward
contract with a term of greater than one year. At the maturity of
a forward contract, a Portfolio may either sell the portfolio
security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract
with the same currency trader obligating it to purchase, on the
same maturity date, the same amount of the foreign currency.
It is impossible to forecast with precision the market value
of portfolio securities at the expiration of the contract.
Accordingly, if a decision is made to sell the security and make
delivery of the foreign currency it may be necessary to purchase
additional foreign currency on the spot market (and bear the
expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Portfolio is obligated
to deliver. 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 the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in
an offsetting transaction, the Portfolio will incur a gain or loss
(as described below) to the extent that there has been movement in
forward contract prices. If the Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during
the period between entering into a forward contract for the sale of
B-25
<PAGE> 63
the foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio
will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Portfolio will
suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed
to sell.
The Portfolios are not required to enter into such
transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the Sub-
Adviser. It also should be realized that this method of protecting
the value of securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which
one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the
value of such currency increase.
American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), and other forms of depository receipts for
securities of foreign issuers provide an alternative method for the
Portfolios to make foreign investments. These securities will not
be denominated in the same currency as the securities into which
they may be converted. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets and GDRs, in bearer
form, are designed for use in non-U.S. securities markets. ADRs
are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. GDRs are Global
receipts evidencing a similar arrangement.
Interest-Rate Swap Transactions
The Growth and Income Portfolio, Fixed Income Portfolio,
Foreign Securities Portfolio, High Yield Portfolio, Natural
Resources Portfolio, Multi-Asset Portfolio and Strategic Multi-
Asset Portfolio may each enter into interest rate swaps. Interest
rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, for
example, an exchange of floating rate payments for fixed-rate
payments. A Portfolio expects to enter into these transactions
primarily to preserve a return or spread on a particular investment
or portion of its portfolio or to protect against any increase in
the price of securities a Portfolio anticipates purchasing at a
later date. A Portfolio intends to use these transactions as a
hedge and not as a speculative investment. The risk of loss with
respect to interest rate swaps is limited to the net amount of
interest payments that the portfolio is contractually obligated to
make and will not exceed 5% of a Portfolio's net assets. The use
B-26
<PAGE> 64
of interest rate swaps may involve investment techniques and risks
different from those associated with ordinary portfolio
transactions. If the Adviser is incorrect in its forecast of
market values, interest rates and other applicable factors, the
investment performance of the Portfolio would diminish compared to
what it would have been if the investment technique was never
used.
Description of Commercial Paper Ratings
The following descriptions of commercial paper ratings have
been published by Standard & Poor's Ratings Services ("Standard &
Poor's") and Moody's Investors Service, Inc. ("Moody's"),
respectively.
Commercial paper rated A by Standard & Poor's is regarded by
Standard & Poor's as having the greatest capacity for timely
payment. Issues rated A are further refined by use of the numbers
1+, 1, 2, and 3 to indicate the relative degree of safety. Issues
rated A-1+ are those with an "overwhelming degree" of credit
protection. Those rated A-1 reflect a "very strong" degree of
safety regarding timely payment. Those rated A-2 reflect a
"strong" degree of safety regarding timely payment but not as high
as A-1.
Moody's employs designations to indicate the relative
repayment capacity of rated issuers as follows:
Prime-1 Highest Quality
Prime-2 Higher Quality
Discount Bonds, Convertible Bonds and Preferred Stocks
Discount bonds are bonds issued below par, or trading below
par, where the yield to maturity is greater than the current yield.
Zero coupon bonds are bonds which pay no current coupon, but where
income is accrued during the passage of time and the bond, as a
result of this accrued interest, should increase in value from
purchase price to maturity value. The sale of a zero coupon bond
on an interim basis, between purchase and maturity, may result in
a cash gain or loss depending on market conditions; and payment of
any cash return depends on the issuer's ability to meet maturity
requirements on maturity date.
Convertible bonds and preferred stocks are fixed-income
instruments which provide for the regular payment of a coupon or
dividend, but which also allow the holder to convert the holding
into shares of the underlying common stock. Thus the valuation of
prospective return of these instruments is some combination of the
current yield resulting from coupon or dividend payment, and
capital appreciation (or depreciation) resulting from movement of
the underlying common stock and market evaluation of conversion
B-27
<PAGE> 65
features. Certain issuers issue bonds or preferred stocks with
warrants, enabling the holder to purchase the issuer's common stock
or other securities. These "synthetic convertibles" will be used
when the Sub-Adviser finds the combination of current return and
capital appreciation potential relatively attractive. Warrants and
common stocks are intended for purchase only where fixed-income
securities of the issuer are also owned or expected to be purchased
by the Portfolio.
Certain Risk Factors Relating to High-Yield (High-Risk) Bonds
The descriptions below are intended to supplement the material
in the prospectus under "Investment Objectives and Policies."
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
defaulted on its obligations to pay interest or principal or
entered into bankruptcy proceedings, the Portfolio may incur
losses or expenses in seeking recovery of amounts owed to it.
In addition, periods of economic uncertainty and change 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, the 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 the 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.
Further Information about the Target '98 Portfolio
B-28
<PAGE> 66
As stated in the Prospectus, the objective of the Target '98
Portfolio is to achieve a predictable compounded investment return
for a specified period of time, consistent with the preservation of
capital. This discussion provides a more detailed explanation of
the investment policies that will be employed to manage this
Portfolio.
If the Target '98 Portfolio held only stripped securities that
were obligations of the United States Government, maturing on the
Maturity Date, the compounded investment return of the Portfolio
from the date of initial investment until the Maturity Date could
be calculated arithmetically with a relatively high degree of
accuracy. However, by (i) including stripped corporate obligations
and current interest bearing debt obligations; (ii) permitting
investment in highly liquid short-term debt obligations; and (iii)
actively managing the Portfolio, the accuracy of the predicted
investment return is reduced somewhat. The reduction in accuracy
is mitigated by: targeting the maturity dates of the Portfolio's
investments to its Maturity Date; purchasing call-protected
securities; and performing fundamental credit analysis to reduce
credit risk.
The receipt of the current income introduces reinvestment
risk. Reinvestment risk is the risk that the payments received
will not be reinvested at interest rates that are as high or higher
than needed to achieve the predicted compounded investment return.
Because the Portfolio employs a policy of utilizing current income
to meet its expenses, reinvestment risk is reduced. If the
Portfolio were comprised only of zero coupon securities, principal
would have to be liquidated to meet expenses, thereby compromising
the objective of providing a predictable compounded investment
return.
The Sub-Adviser's goal in selecting current interest bearing
debt obligations for the Portfolio is to seek to maximize call
protection and to minimize the risk that the issuers of portfolio
securities will default on their obligation to pay or that the
securities rating will be downgraded by Moody's or Standard &
Poor's. Accordingly, the Sub-Adviser intends to select investment-
grade debt obligations with call protection. The Portfolio is
limited to investments in obligations within the four highest
categories assigned by Moody's or by Standard & Poor's.
Nevertheless, credit risks cannot be completely eliminated. If an
issuer defaults on its obligation to pay principal or interest, the
Portfolio's value may be adversely affected.
As stated in the Prospectus, the Portfolio is authorized to
invest in dollar denominated obligations of foreign issuers or
obligations or domestic issuers that trade in foreign markets. The
risks of investing outside of the United States are highlighted in
the Prospectus and explained herein under the following sections:
B-29
<PAGE> 67
Foreign Money Market Instruments, Foreign Securities and Foreign
Currency Exchange Transactions.
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions relating to
the investment of assets of the Money Market, Fixed Income,
Government and Quality Bond, High Yield, Target '98, Growth and
Income, Foreign Securities, Growth, Capital Appreciation, Natural
Resources, Multi-Asset and Strategic Multi-Asset Portfolios. These
are fundamental policies and may not be changed without the
approval of the holders of a majority of the outstanding voting
shares of each Portfolio affected (which for this purpose and under
the Investment Company Act of 1940, as amended (the "1940 Act"),
means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). A change in policy
affecting only one Portfolio may be effected with the approval of
a majority of the outstanding shares of such Portfolio. Except as
otherwise indicated, none of the twelve Portfolios may:
1. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a
result more than 5% of the Portfolio's total assets
(taken at current value) would then be invested in
securities of a single issuer, or more than 25% of its
total assets (taken at current value) would then be
invested in a single industry with the exception of the
Money Market Portfolio which intends to concentrate its
investments in the banking industry, and the Natural
Resources Portfolio which intends to concentrate its
investments in the securities of companies in gold-related
industries.
2. Purchase securities on margin (but the Trust may obtain
such short-term credits as may be necessary for the
clearance of purchases and sales of securities).
3. Make short sales of securities or maintain a short
position.
4. Purchase any security if, as a result, the Portfolio
would then hold more than 10% of the outstanding voting
securities of an issuer.
5. Purchase any security, if as a result, the Portfolio
would then have more than 5% of its total assets (taken
at current value) invested in securities of companies
(including predecessors) that are less than three years
old.
B-30
<PAGE> 68
6. Purchase or retain securities of any company if, to the
knowledge of the Trust, Officers and Trustees of the
Trust and officers and directors of WMC or SAAMCo who
individually own more than 1/2 of 1% of the securities of
that company together own beneficially more than 5% of
such securities.
7. Buy or sell commodities or commodity contracts (except
financial futures as described herein) or, with the
exception of the Natural Resources Portfolio, real estate
or interests in real estate, although a Portfolio may
purchase and sell securities which are secured by real
estate and securities of companies which invest or deal
in real estate.
8. Act as underwriter except to the extent that, in
connection with the disposition of portfolio securities,
a Portfolio may be deemed to be an underwriter under
certain Federal securities laws.
9. Make investments for the purpose of exercising control or
management.
10. Purchase any security restricted as to disposition under
Federal securities laws, if as a result, a Portfolio
would have more than 10% of its total assets (taken at
current value) invested in securities for which market
quotations are not readily available and in repurchase
agreements with a maturity of longer than 7 days.
11. Invest in securities of other investment companies,
except as part of a merger, consolidation or other
acquisition, with the exception of the Natural Resources
Portfolio.
12. With the exception of the Natural Resources Portfolio,
invest in interests in oil, gas or other mineral
exploration or development programs, although to the
extent consistent with its investment objectives and
policies, a Portfolio may invest in the publicly traded
securities of companies which invest in or sponsor such
programs.
13. Make loans, except through (a) the purchase of bonds,
debt obligations such as GNMA securities, debentures,
commercial paper, corporate notes, and similar evidences
of indebtedness of a type commonly sold to financial
institutions (subject to the limitation in paragraph 11
above); and (b) repurchase agreements (subject to the
limitation in paragraph 11 above). The purchase of a
portion of an issue of securities described under (a)
above distributed publicly, whether or not the purchase
B-31
<PAGE> 69
is made on the original issuance, is not considered the
making a loan.
14. Borrow money or pledge Portfolio assets except for
temporary or emergency purposes and then only in an
amount not in excess of 10% of the value of its assets in
which case it may pledge, mortgage or hypothecate any of
its assets as security for such borrowing, but not to an
extent greater than 5% of the value of the assets, except
with respect to the Foreign Securities Portfolio or
Natural Resources Portfolio which may borrow money or
pledge its assets in an amount not in excess of 20% of
the value of its assets. No more than 5% of the assets
of each Portfolio may be borrowed from non-banks.
(Neither the deposit in escrow of underlying securities
in connection with the writing of call options, nor the
deposit of U.S. Treasury bills in escrow in connection
with the writing of put options, nor the deposit of cash
and cash equivalents in a segregated account with the
Trust's Custodian or in a margin account with a broker in
connection with futures, or related options transactions
or in connection with the writing of call and put options
in spread transactions, is deemed to be a pledge.)
15. Write, purchase or sell puts, calls or combinations
thereof on stocks, except as described under Investment
Objectives and Policies with respect to the Growth,
Capital Appreciation, Growth and Income, Fixed
Income, High Yield, Multi-Asset, Strategic Multi-Asset
and Natural Resources Portfolios.
SUNAMERICA ASSET MANAGEMENT CORP.
SunAmerica Asset Management Corp. ("SAAMCo"), 733 Third
Avenue, New York, New York 10017-3204, has been retained pursuant
to Investment Advisory and Management Agreements (the "Advisory
Agreements") to supervise the management and investment programs of
the Foreign Securities, Capital Appreciation, Growth, Natural
Resources, Growth and Income, High Yield, Target '98, Fixed Income,
Government and Quality Bond, Strategic Multi-Asset, Multi-Asset,
and Money Market Portfolios of the Trust.
With respect to each Portfolio of the Trust the Advisory
Agreement was approved by shareholders of each such Portfolio at a
meeting held on February 13, 1990. The Advisory Agreement may be
continued in effect from year to year thereafter, in accordance
with its terms, only so long as such continuance is specifically
approved at least annually by the Board of Trustees or by vote of
a majority of the outstanding voting securities of the Trust. The
Advisory Agreement may be terminated, as to any Portfolio named
therein at any time, without the payment of any penalty, by the
B-32
<PAGE> 70
Trustees or by a vote of a majority of the outstanding shares of
the Trust or of any Portfolio of the Trust, on not less than
thirty (30) days or more than sixty (60) days' prior written notice
to SAAMCo, or by SAAMCo, on ninety (90) days' prior written notice
to the Trust. The Advisory Agreement terminates automatically in
the event of its assignment.
With respect to each Portfolio of the Trust, the Advisory
Agreement was continued for an additional year by the Trustees of
the Trust, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Advisory Agreement at a
meeting held on November 17, 1994.
SAAMCo is engaged in providing investment advice and
management services to the Trust, other mutual funds, pension
funds, and related assets and programs offered by the affiliated
companies of SunAmerica Inc., formerly known as Broad Inc. SAAMCo
also provides investment advice to individual companies and
clients. As of November 30, 1994, SAAMCo manages, advises and/or
administers in excess of $4 billion of assets. SAAMCo provides
investment advisory services, office space, and other facilities
for the management of the Trust's affairs, and pays all
compensation of officers and Trustees of the Trust who are
"interested persons" of SAAMCo. The Trust pays all other expenses
incurred in the operation of the Trust, including fees and expenses
of disinterested Trustees of the Trust, except those affirmatively
undertaken by SAAMCo or WMC.
The Advisory Agreements provide that SAAMCo 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 SAAMCo's officers or
employees to serve without compensation as Trustees or officers of
the Trust if duly elected to such positions. Under the Advisory
Agreements, the Trust agrees to assume and pay certain charges and
expenses of its operations, including: the compensation of the
Trustees (other than those affiliated with SAAMCo or WMC), the
charges and expenses of independent accountants, legal counsel,
expenses of registering or qualifying shares for sale, any transfer
or dividend disbursing agent, any registrar of the Trust, the
Custodian (including fees for safekeeping of securities), costs of
calculating net asset value, all costs of acquiring and disposing
of portfolio securities, interest (if any) on obligations incurred
by the Trust, membership dues in the Investment Company Institute
or any similar organization, reports and notices to shareholders,
miscellaneous expenses and all taxes and fees to Federal, state or
other governmental agencies.
Each Portfolio pays its actual expenses for custodian services
and a portion of the Custodian's costs determined by the ratio of
B-33
<PAGE> 71
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.
With respect to the investment advisory fees, SAAMCo has
agreed, effective January 1, 1993, to waive its fees to the extent
necessary so that the fees actually collected reflect the fee
schedules set forth below at the following annual percentages of
each portfolio's average daily net assets (other than the Natural
Resources Portfolio, for which no fee waiver is made):
<TABLE>
<CAPTION>
Average Daily Management
Portfolio Net Assets Fee
- --------- ---------- ------
<S> <C> <C>
Foreign Securities $0-$100 million .900%
* $100 million .825%
* $250 million .750%
* $500 million .700%
Capital Appreciation $0-$100 million .750%
* $100 million .675%
* $250 million .625%
* $500 million .600%
Growth $0-$250 million .750%
* $250 million .675%
* $500 million .600%
Growth and Income $0-$100 million .700%
* $100 million .650%
* $250 million .600%
* $500 million .575%
Strategic Multi-Asset,
Multi-Asset $0-$200 million 1.000%
* $200 million .875%
* $500 million .800%
High Yield $0-$250 million .700%
* $250 million .575%
* $500 million .500%
Target '98 $0-$100 million .625%
* $100 million .570%
* $250 million .525%
- -----------------------
</TABLE>
* Greater than.
B-34
<PAGE> 72
<TABLE>
<S> <C> <C>
* $500 million .500%
Government & Quality Bond,
Fixed Income $0-$200 million .625%
* $200 million .575%
* $500 million .500%
Money Market $0-$150 million .500%
* $150 million .475%
* $250 million .450%
* $500 million .425%
- -----------------------
</TABLE>
* Greater than.
SAAMCo has agreed that, in the event the expenses of one or
more of the Portfolios exceeds applicable state law expense
limitations, it will waive its fees under the Advisory Agreements
to the extent necessary to reduce the expenses of the affected
Portfolio(s) so as not to exceed such limitation(s). No such
waiver shall result in the obligation (contingent or otherwise) of
the affected Portfolio(s) to repay SAAMCo in any fiscal year any
such amounts waived in previous fiscal years. Such agreements with
respect to expense limitations do not require SAAMCo to
additionally reimburse any Portfolio in the event the waivers are
insufficient to reduce such Portfolio's expenses to the applicable
limitations. Presently, the most restrictive expense limitation
requires that the Trust's aggregate annual expenses shall not
normally exceed 2.5% of the first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5%
of the remaining average net assets.
For the fiscal year ended December 31, 1994, SAAMCo earned
fees of $10,059,491, as follows: $683,712, Foreign Securities
Portfolio; $1,416,274, Capital Appreciation Portfolio; $1,991,742,
Growth Portfolio; $162,953, Natural Resources Portfolio; $284,177,
Growth and Income Portfolio; $713,262, Strategic Multi-Asset
Portfolio; $1,840,983, Multi-Asset Portfolio; $408,977, High Yield
Portfolio; $127,107, Target '98 Portfolio; $213,577, Fixed Income
Portfolio; $1,554,525, Government and Quality Bond Portfolio; and
$662,202, Money Market Portfolio.
For the fiscal year ended December 31, 1993, SAAMCo earned
fees of $9,591,086, as follows: $416,985, Foreign Securities
Portfolio; $875,342, Capital Appreciation Portfolio; $2,176,093,
Growth Portfolio; $102,366, Natural Resources Portfolio; $230,593,
Growth and Income Portfolio; $771,597, Strategic Multi-Asset
Portfolio; $2,104,656, Multi-Asset Portfolio; $505,526, High Yield
Portfolio; $133,731, Target '98 Portfolio; $265,583, Fixed Income
Portfolio; $1,426,880, Government and Quality Bond Portfolio; and
$581,734, Money Market Portfolio.
B-35
<PAGE> 73
For the fiscal year ended December 31, 1992, SAAMCo earned
fees of $5,626,717 as follows: $165,544 Foreign Securities
Portfolio; $218,820, Capital Appreciation Portfolio; $1,227,024
Growth Portfolio; $36,796, Natural Resources Portfolio; $64,903,
Growth and Income Portfolio; $610,324, Strategic Multi-Asset
Portfolio; $1,480,737, Multi-Asset Portfolio; $173,668, High Yield
Portfolio; $62,223, Target '98 Portfolio; $154,259, Fixed Income
Portfolio; $955,433, Government and Quality Bond Portfolio; and
$476,986, Money Market Portfolio.
Personal Securities Trading
The Trust and the Adviser have adopted a written Code of
Ethics (the "Code") which prescribes general rules of conduct and
sets forth guidelines with respect to personal securities trading
by "Access Persons" thereof. An Access Person as defined in the
Code is an individual who is a trustee, director, officer, general
partner or advisory person of the Trust or the Adviser. Among the
guidelines on personal securities trading include; (i) securities
being considered for purchase or sale, or purchased or sold, by any
Investment Company advised by the Adviser, (ii) Initial Public
Offerings, (iii) private placements, (iv) blackout periods, (v)
short-term trading profits, (vi) gifts, and (vii) services as a
director. 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.
Finally, the Sub-Adviser has adopted a written Code of Ethics,
the provisions of which are materially similar to those in the
Code, and has undertaken to comply with the provisions of the Code
to the extent such provisions are more restrictive. Further, the
Sub-Adviser reports to the Adviser, on a quarterly basis, as to
whether there were any Code of Ethics violations by employees
thereof who may be deemed Access Persons of the Trust. In turn,
the Adviser reports to the Board of Trustees as to whether there
were any violations of the Code by Access Persons of the Trust or
the Adviser.
WELLINGTON MANAGEMENT COMPANY
Wellington Management Company serves as Sub-Adviser for all of
the Portfolios of the Trust, pursuant to the Sub-Advisory
Agreements approved by shareholders of each of the Portfolios at a
meeting held on February 13, 1990. (See "Wellington Management
Company" in the Prospectus for additional information concerning
the Sub-Adviser.)
For the year ended December 31, 1994, SAAMCo informed the
Trust that WMC received fees of $2,924,024 as follows: $271,412,
Foreign Securities Portfolio; $559,914, Capital Appreciation
Portfolio; $622,372, Growth Portfolio; $76,045, Natural Resources
Portfolio; $131,939, Growth and Income Portfolio; $192,652,
B-36
<PAGE> 74
Strategic Multi-Asset Portfolio; $351,373, Multi-Asset Portfolio;
$168,345, High Yield Portfolio; $45,759, Target '98 Portfolio;
$76,888, Fixed Income Portfolio; $327,961, Government and Quality
Bond Portfolio; and $99,364, Money Market Portfolio.
For the fiscal year ended December 31, 1993, SAAMCo informed
the Trust that WMC received fees of $2,721,570 as follows:
$180,215, Foreign Securities Portfolio; $375,432, Capital
Appreciation Portfolio; $676,713, Growth Portfolio; $47,771,
Natural Resources Portfolio; $107,061, Growth and Income Portfolio;
$204,319, Strategic Multi-Asset Portfolio; $392,941, Multi-Asset
Portfolio; $200,343, High Yield Portfolio; $48,143, Target '98
Portfolio; $95,610, Fixed Income Portfolio; $305,762, Government
and Quality Bond Portfolio; and $87,260, Money Market
Portfolio.
For the fiscal year ended December 31, 1992, SAAMCo informed
the Trust that WMC received fees of $2,161,543 from SAAMCo as
follows: $132,436, Foreign Securities Portfolio; $204,965,
Capital Appreciation Portfolio; $564,857, Growth Portfolio;
$32,192, Natural Resources Portfolio; $56,249, Growth and Income
Portfolio; $214,737, Strategic Multi-Asset Portfolio; $349,061,
Multi-Asset Portfolio; $130,251, High Yield Portfolio; $35,007,
Target '98 Portfolio; $86,771, Fixed Income Portfolio; $270,843,
Government and Quality Bond Portfolio; and $84,174, Money Market
Portfolio.
OFFICERS AND TRUSTEES OF THE TRUST
The following table lists the Trustees and executive officers
of the Trust, age, their business addresses and principal
occupations during the past five years. The SunAmerica Mutual Fund
Family consists of SunAmerica Equity Funds, SunAmerica Income Funds
and SunAmerica Money Market Funds, Inc. (the "SunAmerica Mutual
Funds").
<TABLE>
<CAPTION>
Position Principal Occupation
Name, Age and Address with the Trust For the Last Five Years
- --------------------- -------------- -----------------------
<S> <C> <C>
Peter A. Harbeck, 41 President and President, SunAmerica Fund
733 Third Avenue Trustee Services, Inc.("SAFS") and
New York, NY 10017 Executive Vice President
and Director (since May 1988) and
Chief Executive Officer (since
September 1994), SunAmerica Asset
Management Corp.("SAAMCo");
formerly Chief Administrative
Officer, SAAMCo, from April 1988
to September 1994; President of
the SunAmerica Mutual Funds,
since November, 1994.
S. James Coppersmith, 61 Trustee Retired, formerly, President
7 Elmwood Road and General Manager, WCVB-TV,
</TABLE>
B-37
<PAGE> 75
<TABLE>
<S> <C> <C>
Marblehead, MA 01945 a division of the Hearst
Corporation from 1982 to 1994;
Director/Trustee of the
SunAmerica Mutual Funds.
Samuel M. Eisenstat, 54 Trustee and Attorney in private practice;
430 East 86th Street Chairman of the Trustee of RPS Realty since
New York, NY 10028 Board December 1988; Director of Volt
Information Sciences Funding
Inc., a subsidiary of Volt
Information Sciences, Inc., since
October 1993; Director/Trustee
and Chairman of the Boards of
the SunAmerica Mutual Funds.
Stephen J. Gutman, 51 Trustee Chairman of the Board, Chief
340 East 79 Street Operating and Executive Officer
New York, NY 10021 of Beau Brummel Casuals Limited,
Inc., a menswear specialty
retailer, since May 1989;
Director/Trustee of the
SunAmerica Mutual Funds.
Jay S. Wintrob, 37* Trustee Executive Vice President,
1 SunAmerica Center, SunAmerica Inc., since November
Century City 1991; formerly Senior Vice
Los Angeles, CA 90067-6022 President of SunAmerica Inc. from
April 1989 to November 1991;
Director/Trustee of the
SunAmerica Mutual Funds.
</TABLE>
B-38
<PAGE> 76
<TABLE>
<S> <C> <C>
Nancy Kelly, 44 Vice Vice President and Head Trader,
733 Third Avenue President SAAMCo, since April 1994;
New York, NY 10017 formerly, Vice President,
Whitehorne & Co. Ltd. (1991-
1994) and Sales Trader, Lynch
Jones & Ryan (1992-1994).
Peter C. Sutton, 30 Controller Vice President, SAAMCo, since
733 Third Avenue September 1994; Controller,
New York, NY 10017 SunAmerica Mutual Funds (since
March 1993); Vice President,
SunAmerica Series Trust and
Anchor Pathway Fund (since
January 1995); Assistant
Controller, SunAmerica Mutual
Funds (1990-1993); formerly,
Senior Accountant/Supervisor, The
Dreyfus Corporation (1986-1990).
Robert M. Zakem, 37 Secretary Senior Vice President and General
733 Third Avenue Counsel, SAAMCo, since April
New York, NY 10017-3204 1993; Executive Vice President
and Director, SunAmerica Capital
Services, Inc., since February
1993; Vice President, SAFS, since
January 1994; formerly Vice
President and Associate General
Counsel, SAAMCo, March 1992 to
April 1993; Associate, Piper &
Marbury from 1989 to 1992.
</TABLE>
- ------------------
* A trustee who is an "interested person" of the Trust, the Adviser or the
Sub-Adviser, as defined in the 1940 Act.
Each of the non-affiliated Trustees is entitled to
compensation from the Trust consisting of an annual fee of $20,000.
In addition, Mr. Eisenstat receives an aggregate of $2,000 in
annual compensation for serving as Chairman of the Board of the
Trust. These expenses are allocated on the basis of the relative
net asset value of each Portfolio. Officers are compensated by
SAAMCo or its affiliates and receive no compensation from the
Trust.
In addition, each unaffiliated Trustee also serves on the
Audit Committee of the Board of Trustees. Each member of the Audit
Committee receives an aggregate of $5,000 in annual compensation
for serving on the Audit Committees of all of the SunAmerica Family
of Mutual Funds and the Trust. With respect to the Trust, each
member of the Audit Committee receives a pro rata portion of the
$5,000 annual compensation, based on the relative net assets of the
Trust. The Trust also has a Nomination Committee, comprised solely
of unaffiliated Trustees, which recommends to the Trustees those
persons to be nominated for election as Trustees by shareholders
and selects and proposes nominees for election by Trustees between
shareholders' meetings. Members of the Nominating Committee serve
B-39
<PAGE> 77
without compensation. For the fiscal year ended December 31, 1994,
the Trust paid Trustees' fees and expenses which totaled $80,109.
The Trustees (and Directors) of the SunAmerica Family of
Mutual Funds and the Trust have adopted the SunAmerica
Disinterested Trustees' and Directors' Retirement Plan (the
"Retirement Plan") effective January 1, 1993 for the unaffiliated
Trustees. The Retirement Plan provides generally that if an
unaffiliated Trustee who has at least 10 years of consecutive
service as an Unaffiliated Trustee of any of the SunAmerica mutual
funds (an "Eligible Trustee") retires after reaching age 60 but
before age 70 or dies while a Trustee, such person will be eligible
to receive a retirement or death benefit from each SunAmerica
mutual fund with respect to which he or she is an Eligible Trustee.
As of each birthday, prior to the 70th birthday, each Eligible
Trustee will be credited with an amount equal to (i) 50% of his or
her regular fees (excluding committee fees) for services as a
Disinterested Trustee of each SunAmerica mutual fund for the
calendar year in which such birthday occurs, plus (ii) 8.5% of any
amounts credited under clause (i) during prior years. An Eligible
Trustee may receive any benefits payable under the Retirement Plan,
at his or her election, either in one lump sum or in up to fifteen
annual installments.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts is the Custodian of the
Trust. As Custodian, State Street holds all securities and cash
owned by the Trust, and receives for the Trust all payments of
income, payments of principal or capital distribution received by
it with respect to securities owned by the Trust and receives the
payment for the shares issued by the Trust. The Custodian releases
and delivers securities and cash upon proper instructions from the
Trust.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Price Waterhouse LLP, 1177 Avenue of the Americas, New York,
New York, serves as independent accountants to the Trust and, in
that capacity, audits the annual financial statements of the
Trust.
The firm of Routier, Mackey and Johnson, P.C. has been
selected as legal counsel for the Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE
All purchase and sale orders of securities for the Portfolios
are placed on behalf of the Trust by the Sub-Adviser. If the
securities in which a particular Portfolio invests are traded
primarily in the over-the-counter market, then the Portfolio may
B-40
<PAGE> 78
deal directly with the broker-dealers who make a market in the
securities involved unless better prices and execution are
available elsewhere. These brokers may also furnish brokerage and
research services, including advice as to the advisability of
investing in securities, securities analysis and reports.
Broker-dealers involved in the execution of portfolio
transactions on behalf of the Trust are selected on the basis of
their professional capability and the value and quality of their
services. In selecting such broker-dealers, the Sub-Adviser will
consider various relevant factors, including, but not limited to,
the size and type of the transaction; the nature and character of
the markets in which the security can be purchased or sold; the
execution efficiency, settlement capability, and financial
condition of the broker-dealer; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of
any commissions.
The Trust reserves the right to effect portfolio transactions
through a brokerage affiliated with the Adviser, acting as agent
and not as principal, provided that any commissions, fees or other
remuneration received by affiliated brokers are within the
limitations set forth in the 1940 Act and are 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 an exchange during a
comparable period of time. The Adviser, subject to applicable laws
and regulations, may also consider the willingness of particular
brokers to sell the Variable Contracts as a factor in the selection
of brokers for its portfolio transactions.
Brokers may be selected to provide brokerage or research
services to the Trust or other accounts over which WMC or SAAMCo
exercises investment discretion. Such service may include advice
concerning the value of securities; the advisability of investing
in, purchasing or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing
analysis and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing
functions incidental thereto, such as clearance and settlement.
The receipt of research from brokers may be useful in
rendering investment management services to the Trust and other
clients of WMC and SAAMCo; conversely, such information provided by
brokers who have executed transaction orders on behalf of other
clients may be useful in carrying out obligations to the Trust.
The receipt of such research will not be substituted for
independent research and the expenses of WMC or SAAMCo will not
necessarily be reduced as a result of the receipt of such
supplemental information. The Sub-Adviser may effect individual
securities transactions at commission rates in excess of the
B-41
<PAGE> 79
minimum commission rates available, if WMC determines in good faith
that such amount of commission is reasonable in relation to the
value of the brokerage or research services provided by the broker
or dealer, viewed in terms of either that particular transaction or
WMC's overall responsibilities with respect to the accounts as to
which it exercises investment discretion.
Some securities considered for investment by the Trust may
also be appropriate for other clients served by the Sub-Adviser.
There may be occasions when the Trust and one or more of the other
clients advised by WMC will find themselves contemporaneously
engaged in purchasing or selling the same securities from or to
third parties. When this occurs, the transactions will be averaged
as to price and allocated as to amounts in accordance with an
allocation policy, which has been reviewed by the Board of Trustees
and considered to be equitable to the portfolios involved. It is
recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Trust
is concerned. However, it is the judgment of the Board of Trustees
of the Trust that the desirability of its advisory arrangement with
SAAMCo and the sub-advisory arrangement with WMC outweighs any
disadvantages that may result from such contemporaneous
transactions.
The Board of Trustees periodically reviews performance of
responsibilities in connection with the placement of portfolio
transactions on behalf of the Trust and reviews the prices and
commissions, if any, paid by the Trust to determine if they are
reasonable in relation to the benefits to the Trust.
For the fiscal years ended December 31, 1992, 1993 and 1994,
the Trust paid a total of $530,000, $1,187,000 and $1,510,000,
respectively, in brokerage commissions rounded to the nearest
thousand dollars. For the years ended December 31, 1992, 1993 and
1994, the following Portfolios of the Trust paid brokerage
commissions to Royal Alliance Associates, Inc., a currently
affiliated broker-dealer, of $49,640, $145,762 and $133,036,
respectively:
<TABLE>
<CAPTION>
1994 1993 1992
Amount Amount Amount
------ ------ ------
<S> <C> <C> <C>
Growth Portfolio $63,701 $47,357 $14,109
Strategic Multi-Asset Portfolio 5,650 2,360 1,665
Multi-Asset Portfolio 20,574 34,270 8,028
Capital Appreciation Portfolio 34,099 59,975 25,838
Foreign Securities Portfolio 600 -0- -0-
Natural Resources Portfolio 8,412 1,800 -0-
-------- -------- -------
$133,036 $145,726 $49,640
======== ======== =======
</TABLE>
PORTFOLIO TURNOVER
B-42
<PAGE> 80
Although the Portfolios, except for the Money Market
Portfolio, do not invest for short-term trading purposes, Portfolio
securities may be sold from time to time without regard to the
length of time they have been held. A Portfolio's turnover rate is
the percentage computed by dividing the lesser of Portfolio
purchases or sales (excluding all securities whose maturities at
acquisition were one year or less) by the average value of the
Portfolio (excluding all securities whose maturities at acquisition
were one year or less). To the extent a Portfolio has a higher
portfolio turnover rate (e.g., over 100%), brokerage commissions
and other transaction costs, which are borne directly by the
Portfolio, will be correspondingly higher. Portfolio turnover
rates are reported in the table below:
<TABLE>
<CAPTION>
Portfolio
Portfolio Time Period Turnover Rate
- --------- ----------- -------------
<S> <C> <C>
Government & Quality 1/1/94-12/31/94 117.6%
Bond 1/1/93-12/31/93 93.2%
1/1/92-12/31/92 76.4%
Fixed Income 1/1/94-12/31/94 56.5%
1/1/93-12/31/93 45.9%
1/1/92-12/31/92 31.8%
Growth 1/1/94-12/31/94 74.8%
1/1/93-12/31/93 66.3%
1/1/92-12/31/92 37.9%
High Yield 1/1/94-12/31/94 97.9%
1/1/93-12/31/93 121.1%
1/1/92-12/31/92 134.9%
Capital Appreciation 1/1/94-12/31/94 64.0%
1/1/93-12/31/93 111.2%
1/1/92-12/31/92 92.9%
Foreign Securities 1/1/94-12/31/94 73.9%
1/1/93-12/31/93 47.7%
1/1/92-12/31/92 144.2%
Multi-Asset 1/1/94-12/31/94 82.5%
1/1/93-12/31/93 48.2%
1/1/92-12/31/92 38.6%
Strategic Multi-Asset 1/1/94-12/31/94 63.7%
1/1/93-12/31/93 73.9%
1/1/92-12/31/92 57.5%
Growth and Income 1/1/94-12/31/94 50.7%
</TABLE>
B-43
<PAGE> 81
<TABLE>
<S> <C> <C>
1/1/93-12/31/93 86.2%
1/1/92-12/31/92 86.5%
Natural Resources 1/1/94-12/31/94 36.0%
1/1/93-12/31/93 34.5%
1/1/92-12/31/92 18.7%
Target '98 1/1/94-12/31/94 9.2%
1/1/93-12/31/93 20.8%
1/1/92-12/31/92 37.3%
</TABLE>
NET ASSET VALUE
The net asset value of the shares of each Portfolio will be
computed once daily at the close of regular trading of the New York
Stock Exchange (which is currently 4:00 p.m., New York time), on
days the New York Stock Exchange is open for trading which are
Monday through Friday, except for New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Portfolios will not
calculate such price on each other day in which no orders to
purchase, sell or redeem shares have been received or days on which
changes in the value of the Trust's portfolio securities do not
materially affect the net asset value.
The net asset value of a share of each Portfolio is calculated
by adding the value of all securities and other assets, deducting
its accrued liabilities, and dividing the remainder by the number
of shares outstanding. Except with respect to securities held by
the Money Market Portfolio securities of each Portfolio are valued
as follows: Equity securities which are traded on domestic stock
exchanges, are valued at the last sale price as of the close of
business on the day the securities are being valued, or lacking any
sales, at the closing bid price. Securities traded in the over-
the-counter market are valued at the closing bid price or yield
equivalent as obtained from one or more dealers that make markets
in the securities. Portfolio securities, which are traded both in
the over-the-counter market and on a stock exchange, are valued
according to the broadest and most representative market. Bonds
and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. The prices
provided by a pricing service may be determined without regard to
bid or last sale prices but take into account institutional size
trading in similar groups of securities and any developments
related to specific securities. Securities not priced in this
manner are valued at the most recent quoted bid price. Securities
and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under
the direction of the Board of Trustees of the Trust. Short-term
B-44
<PAGE> 82
securities, other than GNMA securities, with maturities of sixty
(60) days or less will be valued at amortized cost.
Foreign Securities Portfolio
The Portfolio's securities are valued by appraising securities
at the last sale price, or, if no sale, at the closing bid price,
if traded on an exchange, and if not so traded, on the basis of
closing over-the-counter bid prices, if available. Dividend income
from portfolio securities is recorded on the ex-dividend date,
except that, if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the Portfolio is
informed of the dividend after the ex-dividend date.
Valuations of foreign securities are furnished by a quotation
service and are already translated into U.S. dollars. The methods
used by the quotation service and the quality of valuations so
established are reviewed by officers of the Trust under the general
supervision of the Trustees. A security which is listed or traded
on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security.
Short-term obligations that mature in 60-days or less are valued at
amortized cost, provided that such value constitutes fair value as
determined in good faith by the Board of Trustees.
Generally, all trading in foreign securities, as well as
corporate bonds, U.S. Government securities, money market
instruments, and repurchase agreements, is substantially completed
each day at various times prior to the close of the New York Stock
exchange. The values of any such securities held by the Portfolio
are determined as of such times for the purpose of computing the
net asset value. The procedures set forth above need not be used
to determine the value of debt securities owned by the Trust if, in
the opinion of the Board of Trustees, some other method (e.g.,
based on closing over-the-counter bid prices in the case of debt
instruments traded on an exchange) would more accurately reflect
the fair market value of such debt securities. Foreign currency
exchange rates are also generally determined prior to the close of
the New York Stock Exchange. If an extraordinary event occurs,
which is expected to materially affect the value of a security,
then the security will be valued at fair value as determined in
good faith under the direction of the Trustees.
Money Market Portfolio
Securities of the Money Market Portfolio are valued by the
amortized cost method under Rule 2a-7 of the 1940 Act, which
involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of
the impact of fluctuations in general market rates of interest on
the value of the instrument. While this method provides certainty
B-45
<PAGE> 83
in valuation, it may result in periods during which value, as
determined by this method is higher or lower than the price the
Portfolio would receive if it sold the securities.
The use of this valuation method is continuously reviewed and
the Board of Trustees will make such changes as may be necessary to
assure that the assets of the Portfolio are valued fairly as
determined by the Trustees in good faith, as a particular
responsibility within the overall duty of care owed to the
shareholders, to establish procedures reasonably designed, taking
into account current market conditions and the Portfolio's
investment objectives, to stabilize the net asset value per share
as computed for the purpose of distribution and redemption at $1.00
per share. The Trustees' procedures include periodically
monitoring as they deem appropriate and at such intervals as are
reasonable in light of current market conditions, the relationship
between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The
Trustees will consider what steps should be taken, if any, in the
event of a difference of more than 1/2 of 1% between the two. The
Trustees will take such steps as they consider appropriate, (e.g.,
selling securities to shorten the average portfolio maturity) to
minimize any material dilution or other unfair results which might
arise from differences between the two. The Rule requires that the
Portfolio limit its investments to instruments which the Trustees
determine will present minimal credit risks and which are of high
quality as determined by at least one major rating agency, or, in
the case of any instrument that is not so rated, of comparable
quality as determined by the Trustees. It also calls for the
Portfolio to maintain a dollar weighted average portfolio maturity
(not more than 90 days) appropriate to its objective of maintaining
a stable net asset value of $1.00 per share and precludes the
purchase of any instrument with a remaining maturity of more than
397 calendar days. Should the disposition of a portfolio security
result in a dollar weighted average portfolio maturity of more than
90 days, the Portfolio will invest its available cash in such
manner as to reduce such maturity to 90 days or less as soon as
reasonably practicable.
It is the normal practice of the Portfolio to hold portfolio
securities to maturity. Therefore, unless a sale or other
disposition of a security is mandated by redemption requirements or
other extraordinary circumstances, the Portfolio will realize the
par value of the security. Under the amortized cost method of
valuation traditionally employed by institutions for valuation of
money market instruments, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or
depreciation of the Portfolio. In periods of declining interest
rates, the indicated daily yield on shares of the Portfolio as
computed by dividing the annualized daily income of the Portfolio
by the net asset value will tend to be higher than if the valuation
was based upon market prices and estimates. In periods of rising
B-46
<PAGE> 84
interest rates, the indicated daily yield on shares of the
Portfolio as computed by dividing the annualized daily income of
the Portfolio by the net asset value will tend to be lower than if
the valuation was based upon market prices and estimates.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio of the Trust is qualified and intends to remain
qualified as a "regulated investment company" under certain
provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). Under such provisions, the Trust and each of the
Portfolios will not be subject to Federal income tax on such part
of its net investment income and net realized capital gains, if
any, which it distributes to shareholders. To qualify for
treatment as a "regulated investment company," the Trust and each
Portfolio must, among other things, derive in each taxable year at
least 90% of its gross income from dividends, interest and gains
from the sale or other disposition of securities and derive less
than 30% of its deduction or losses from the sale or other
disposition of securities held for less than three months.
It is the Trust's intention to distribute substantially all
the net investment income, if any, of each Portfolio. For dividend
purposes, net investment income of each Portfolio, other than the
Money Market Portfolio, will consist of all payments of dividends
or interest received by such Portfolio less the estimated expenses
of such Portfolio (including fees payable to SAAMCo). Net
investment income of the Money Market Portfolio consists of (i)
interest accrued or discount earned; (ii) plus or minus all
realized gains and losses on the Portfolio securities; (iii) less
the estimated expenses of the Portfolio applicable to that dividend
period.
Dividends on the Money Market Portfolio will be declared daily
and reinvested monthly in additional full and fractional shares of
the respective Portfolio. Dividends from the Growth, Fixed Income,
Capital Appreciation, Foreign Securities, Growth and Income, Multi-
Asset, Strategic Multi-Asset, Government and Quality Bond, High
Yield, Natural Resources and Target '98 Portfolios will be declared
and reinvested at least annually in additional full and fractional
shares of the respective Portfolios.
All net realized capital gains of each Portfolio of the Trust,
if any, are declared and distributed annually to the shareholders
of the Portfolio to which such gains are attributable.
At December 31, 1994, the Portfolios of the Trust had the
following capital loss carryovers and related years of expiration:
B-47
<PAGE> 85
Capital Loss Carryover
<TABLE>
<CAPTION>
Total
Amount of Amount and Year of Expiration
Capital Loss --------------------------------------------------------------------------------
Carryover 1996 1997 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Income 2,796,395 805,834 391,804 558,735 -0- -0- -0- 1,040,022
Portfolio
High Yield 13,099,310 -0- 5,210,616 4,083,418 2,784,801 -0- -0- 1,020,475
Portfolio
Foreign 4,249,549 -0- -0- -0- -0- 1,596,931 1,596,931 -0-
Securities Portfolio
Target `98 27,017 -0- -0- -0- -0- -0- -0- 27,017
Portfolio
</TABLE>
B-48
<PAGE> 86
GENERAL INFORMATION
Under Massachusetts law, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally
liable as partners for the obligations of the Trust. The
Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and requires that
notices of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification
out of the Trust property for any shareholders held personally
liable for the obligations of the Trust, and also provides that the
Trust shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. Thus, the risk of a shareholder
incurring 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 further provides
that the Trustees will not be liable for errors of judgment or
mistakes of fact or law; but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office.
The Trust shall be of unlimited duration subject to the
provisions in the Declaration of Trust concerning termination by
action of the shareholders.
OWNERSHIP OF SHARES
Prior to January 18, 1990, the shares of all of the Portfolios
of the Trust were held by separate accounts of Integrated Resources
Life Insurance Company ("IR Life"), The Capitol Life Insurance
Company ("Capitol Life") and Presidential Life Insurance Company to
fund certain variable contracts issued by such companies. In an
assumption reinsurance transaction effected on January 18, 1990,
the separate accounts of IR Life were transferred to Anchor
National Life Insurance Company and, Anchor National Life Insurance
Company assumed all the variable contract business of IR Life.
Concurrent with that transaction (but effective as of December 31,
1989), Capitol Life reinsured, among other things, its ICAP
variable annuity contracts and transferred its ICAP separate
account to IR Life. Thus, in the reinsurance transaction settled
on January 18, 1990, Anchor National Life Insurance Company
acquired the separate accounts and the assets reflected therein
(i.e., shares of the Trust) and assumed all of the variable
contract rights and obligations of both Capitol Life and IR Life.
Subsequently, Anchor National Life Insurance Company transferred
all the variable life contracts it acquired from IR Life to Phoenix
Mutual Life Insurance Company. Thus, Phoenix Mutual Life Insurance
Company acquired the separate accounts and assets thereto.
B-49
<PAGE> 87
As of the date of this Statement of Additional Information,
shares of the Trust are offered only to the separate accounts of
Anchor National Life Insurance Company, a separate account of
Phoenix Mutual Life Insurance Company, a separate account of First
SunAmerica Life Insurance Company and a separate account of
Presidential Life Insurance Company. In turn, these separate
accounts fund variable annuity contracts and variable life
insurance policies issued by those insurance companies.
FINANCIAL STATEMENTS
The audited Annual Report dated December 31, 1994 for the
Trust is incorporated herein by reference to the Statement of
Additional Information of the Trust dated February 28, 1995.
B-50
<PAGE> 88
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements are included in Part A of
the Registration Statement:
Condensed Financial Information
The following financial statements are included in Part B of
the Registration Statement.
Financial Statements for Anchor Series Trust -- with
respect to Registrant's fiscal year ended December 31,
1994.
(b) Exhibits
( 1) Declaration of Trust, as Amended . . . . . . Filed Herewith
( 2) By-Laws. . . . . . . . . . . . . . . . . . . Filed Herewith
( 3) Voting Trust Agreement . . . . . . . . . . . Not Applicable
( 4) Share of Beneficial Interest . . . . . . . . Not Applicable
( 5) (a) Investment Advisory and
Management Agreements . . . . . . . . . Filed Herewith
(b) Sub-Advisory Agreements . . . . . . . . Filed Herewith
( 6) Distribution Agreement . . . . . . . . . . . Not Applicable
( 7) Bonus, Profit Sharing, Pension
or Similar Contracts . . . . . . . . . . . Previously Filed
( 8) Custodian Agreement. . . . . . . . . . . . Previously Filed
( 9) Form of Fund Participation Agreement . . . Previously Filed
(10) Opinion and Consent of Counsel . . . . . . Previously Filed
(11) Consent of Accountants . . . . . . . . . . . Filed Herewith
(12) Financial Statements Omitted from Item 23. . Not Applicable
(13) Initial Capitalization Agreement . . . . . . Not Applicable
(14) Model Plan . . . . . . . . . . . . . . . . . Not Applicable
(15) Rule 12b-1 Plan. . . . . . . . . . . . . . . Not Applicable
(16) Persons under Common Control with
Registrant . . . . . . . . . . . . . . . . Previously Filed
(17) Performance Computations . . . . . . . . . Previously Filed
(18) Powers of Attorney . . . . . . . . . . . . Previously Filed
All previously filed exhibits are specifically incorporated
herein by reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant
Previously Filed.
<PAGE> 89
Item 26. Number of Holders of Securities
As of December 26, 1995, the number of record holders of
Anchor Series Trust was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Shares of Beneficial Interest 5*
</TABLE>
* Held by the separate accounts of Anchor National Life
Insurance Company, Phoenix Mutual Life Insurance Company,
Presidential Life Insurance Company and First SunAmerica
Life Insurance Company.
Item 27. Indemnification
The Declaration of Trust (Section 5.3) provides that "each
officer, Trustee or agent of the Trust shall be indemnified by
the Trust to the full extent permitted under the General Laws
of the State of Massachusetts and the Investment Company Act
of 1940, as amended, except that such indemnity shall not
protect any such person against any liability to the Trust or
any shareholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct")."
The Investment Advisory and Management Agreements and Sub-Advisory
Agreements each provide in essence that under certain circumstances
the Investment Adviser or the Sub-Adviser (and
their officers, directors, agents, employees, controlling
persons, shareholders and any other person or entity
affiliated with the Investment Adviser or Sub-Adviser to
perform or assist in the performance of its obligations under
each Agreement) shall not be subject to liability to the Trust
or to any shareholder of the Trust for any act or omission in
the course of, or connected with, rendering services,
including without limitation, any error of judgment or mistake
of 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.
SunAmerica Inc., the parent of Anchor National Life Insurance
Company, provides, without cost to the Fund, indemnification
of individual trustees. By individual letter agreement,
SunAmerica Inc. indemnifies each trustee to the fullest extent
permitted by law against expenses and liabilities (including
damages, judgments, settlements, costs, attorney's fees,
charges and expenses) actually and reasonably incurred in
connection with any action which is the subject of any
threatened, asserted, pending or completed action, suit or
proceeding, whether civil, criminal, administrative,
investigative or otherwise and whether formal or informal to
which any trustee was, is or is threatened to be made a party
by reason of facts
2
<PAGE> 90
which include his being or having been a trustee, but only to
the extent such expenses and liabilities are not covered by insurance.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person
in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and other Connections of Investment Adviser
Information concerning the business and other connections of
SAAMCo is incorporated herein by reference from SAAMCo's Form ADV
(File No. 801-19813) and information concerning the business and
other connections of Wellington is incorporated herein by reference
from Wellington's Form ADV (File No. 801-15908), which are
currently on file with the Securities and Exchange Commission.
Item 29. Principal Underwriters
There is no Principal Underwriter for the Registrant.
Item 30. Location of Accounts and Records
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as Custodian, Transfer Agent
and Dividend Paying Agent. It maintains books, records and
accounts pursuant to the instructions of the Fund.
SunAmerica Asset Management Corp., the Investment Adviser, is
located at 733 Third Avenue, New York, New York 10017-3204.
It maintains 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.
Wellington Management Company, the Sub-Adviser, is located at
75 State Street, Boston, Massachusetts 02109. It maintains
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
3
<PAGE> 91
thereunder.
Item 31. Management Services
None.
Item 32. Undertakings
(c) Registrant hereby undertakes to furnish an investor to
whom a prospectus is delivered with a copy of
Registrant's latest annual report to shareholders, upon
request and without charge.
4
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, Registrant has duly caused the
Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A 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 26th day of December, 1995.
ANCHOR SERIES TRUST
By:/s/Peter A. Harbeck
--------------------------------
Peter A. Harbeck,
President
Pursuant to the requirements of the Securities Act of 1933,
the Post-Effective Amendment No. 24 to Registrant's Registration
Statement on Form N-1A has been signed below by the following
persons in the capacities and on the dates indicated:
/s/Peter A. Harbeck President and Trustee December 26, 1995
- ----------------------- (Principal Executive
Peter A. Harbeck Officer)
* Controller December 26, 1995
- ----------------------- (Principal Financial
Peter C. Sutton and Accounting Officer)
* Trustee December 26, 1995
- -----------------------
S. James Coppersmith
* Trustee December 26, 1995
- -----------------------
Samuel M. Eisenstat
* Trustee December 26, 1995
- -----------------------
Stephen J. Gutman
*By: /s/Robert M. Zakem
- -----------------------
Attorney-in-Fact
Robert M. Zakem
<PAGE> 93
ANCHOR SERIES TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Name Page No.
- ----------- ---- --------
<S> <C> <C>
1 Declaration of Trust
and Amendments Thereto
2 By-Laws and Amendments
Thereto
5(a) Investment Advisory and
Management Agreement
5(b) Sub-Advisory Agreement
11 Consent of Price Waterhouse
</TABLE>
<PAGE> 1
EXHIBIT 99.B1
AMENDED
DECLARATION OF TRUST
INTEGRATED RESOURCES SERIES TRUST
September 1, 1988
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
THE TRUST
Section 1.1 Name. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Location. . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Nature of Trust . . . . . . . . . . . . . . . . . . 2
Section 1.4 Definitions . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
POWERS OF TRUSTEES
Section 2.1 General . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Investments . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Legal Title . . . . . . . . . . . . . . . . . . . . 4
Section 2.4 Disposition of Assets . . . . . . . . . . . . . . . 4
Section 2.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6 Rights as Holder of Securities . . . . . . . . . . 5
Section 2.7 Delegation; Committees. . . . . . . . . . . . . . . 5
Section 2.8 Collection . . . . . . . . . . . . . . . . . . . . 5
Section 2.9 Expenses. . . . . . . . . . . . . . . . . . . . . . 6
Section 2.10 Borrowing . . . . . . . . . . . . . . . . . . . . . 6
Section 2.11 Deposits. . . . . . . . . . . . . . . . . . . . . . 6
Section 2.12 Allocation . . . . . . . . . . . . . . . . . . . . 6
Section 2.13 Valuation . . . . . . . . . . . . . . . . . . . . . 7
Section 2.14 Fiscal Year . . . . . . . . . . . . . . . . . . . . 7
Section 2.15 Concerning the Trust and Certain Affiliates . . . . 7
Section 2.16 Power to Contract . . . . . . . . . . . . . . . . . 8
Section 2.17 Insurance . . . . . . . . . . . . . . . . . . . . . 9
section 2.18 Pension and Other Plans . . . . . . . . . . . . . . 9
Section 2.19 Seal. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.20 Charitable Contributions. . . . . . . . . . . . . . 9
Section 2.21 Indemnification . . . . . . . . . . . . . . . . . . 10
Section 2.22 Remedies. . . . . . . . . . . . . . . . . . . . . . 10
Section 2.23 Separate Accounting . . . . . . . . . . . . . . . . 10
Section 2.24 Further Powers. . . . . . . . . . . . . . . . . . . 10
ARTICLE III
ADVISER AND DISTRIBUTOR
Section 3.1 Appointment . . . . . . . . . . . . . . . . . . . . 10
Section 3.2 Provisions of Agreement . . . . . . . . . . . . . . 10
ARTICLE IV
INVESTMENTS
Section 4.1 Statement of Investment Objectives
and Policies. . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.2 Restrictions. . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Percentage Restrictions . . . . . . . . . . . . . . 11
Section 4.4 Amendment of Investment Objectives and
Policies and of Investment Limitations. . . . . . . 11
ARTICLE V
LIMITATIONS OF LIABILITY
Section 5.1 Liability to Third Persons. . . . . . . . . . . . . 11
Section 5.2 Liability to Trust or to Shareholders . . . . . . . 12
Section 5.3 Indemnification . . . . . . . . . . . . . . . . . . 12
Section 5.4 Surety Bonds. . . . . . . . . . . . . . . . . . . . 13
Section 5.5 Apparent Authority. . . . . . . . . . . . . . . . . 13
Section 5.6 Recitals. . . . . . . . . . . . . . . . . . . . . . 13
Section 5.7 Reliance on Experts, Etc. . . . . . . . . . . . . . 13
Section 5.8 Liability Insurance . . . . . . . . . . . . . . . . 13
ARTICLE VI
CHARACTERISTICS OF SHARES
Section 6.1 General . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.2 Classes of Stock . . . . . . . . . . . . . . . . . 14
Section 6.3 Evidence of Share Ownership . . . . . . . . . . . . 15
Section 6.4 Death of Shareholders . . . . . . . . . . . . . . . 15
Section 6.5 Repurchase of Shares. . . . . . . . . . . . . . . . 15
Section 6.6 Trustees as Shareholders. . . . . . . . . . . . . . 16
Section 6.7 Information from Shareholders . . . . . . . . . . . 16
Section 6.8 Redemptions . . . . . . . . . . . . . . . . . . . . 16
Section 6.9 Suspension of Redemption; Postponement
of Payment. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII
RECORD AND TRANSFER OF SHARES
Section 7.1 Share Register. . . . . . . . . . . . . . . . . . . 17
Section 7.2 Transfer Agent. . . . . . . . . . . . . . . . . . . 17
Section 7.3 Owner of Record . . . . . . . . . . . . . . . . . . 17
Section 7.4 Transfers of Shares . . . . . . . . . . . . . . . . 17
Section 7.5 Limitation of Fiduciary Responsibility. . . . . . . 17
Section 7.6 Notices . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII
SHAREHOLDERS
Section 8.1 Meetings of Shareholders. . . . . . . . . . . . . . 18
Section 8.2 Quorums . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.3 Notice of Meetings. . . . . . . . . . . . . . . . . 18
Section 8.4 Record Date for Meetings. . . . . . . . . . . . . . 18
Section 8.5 Proxies, Etc. . . . . . . . . . . . . . . . . . . . 19
Section 8.6 Reports . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.7 Inspection of Records . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 4
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.8 Shareholder Action by Written Consent . . . . . . . 20
Section 8.9 Voting Rights of Shareholders . . . . . . . . . . . 20
ARTICLE IX
TRUSTEES
Section 9.1 Number and Qualification. . . . . . . . . . . . . . 20
Section 9.2 Term and Election . . . . . . . . . . . . . . . . . 20
Section 9.3 Resignation and Removal . . . . . . . . . . . . . . 21
Section 9.4 Vacancies . . . . . . . . . . . . . . . . . . . . . 22
Section 9.5 Meetings. . . . . . . . . . . . . . . . . . . . . . 22
Section 9.6 Officers. . . . . . . . . . . . . . . . . . . . . . 23
Section 9.7 By-laws . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND DETERMINATION
OF NET ASSET VALUE AND NET INCOME
Section 10.1 General. . . . . . . . . . . . . . . . . . . . . . 23
Section 10.2 Retained Earnings. . . . . . . . . . . . . . . . . 24
Section 10.3 Source of Distributions. . . . . . . . . . . . . . 24
Section 10.4 Net Asset Value. . . . . . . . . . . . . . . . . . 24
Section 10.5 Power to Modify Valuation Procedures . . . . . . . 24
ARTICLE XI
CUSTODIAN
Section 11.1 Appointment and Duties . . . . . . . . . . . . . . 25
Section 11.2 Central Certificate System . . . . . . . . . . . . 25
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
Section 12.1 Recording. . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XIII
AMENDMENT OR TERMINATION OF TRUST
Section 13.1 Amendment or Termination . . . . . . . . . . . . . 26
Section 13.2 Power to Effect Reorganization . . . . . . . . . . 27
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Governing Law. . . . . . . . . . . . . . . . . . . 28
Section 14.2 Counterparts . . . . . . . . . . . . . . . . . . . 28
Section 14.3 Reliance by Third Parties. . . . . . . . . . . . . 28
Section 14.4 Provisions in Conflict with Law
or Regulations . . . . . . . . . . . . . . . . . . 28
Section 14.5 Section Headings . . . . . . . . . . . . . . . . . 29
ARTICLE XV
DURATION OF TRUST
Section 15.1 Duration . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE> 5
Amended
Declaration of Trust
of
INTEGRATED RESOURCES SERIES TRUST
This Amended Declaration of Trust made the lst day of
September, 1988 by Harvey P. Eisen, Stephen J. Gutman, Samuel M.
Eisenstat, S. James Coppersmith and Frank W. Geller, the
undersigned Trustees of Integrated Resources Series Trust.
WITNESSETH:
WHEREAS, the Trustees desire to establish an unincorporated
voluntary association commonly known as a business trust, as
described in the provisions of Chapter 182 of the General laws of
Massachusetts, for the principal purpose of the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that such trust be a registered
open-end investment company under the Investment Company Act of
1940; and
WHEREAS, the Trustees have acknowledged the receipt of and
investment of One Hundred Thousand Dollars ($100,000.00) by means
of an Agreement Governing Contribution and have agreed to hold,
invest and dispose of the same and any property acquired or
otherwise added thereto as such Trustees as hereinafter stated; and
WHEREAS, it is proposed that the beneficial interest in the
Trust's assets shall be divided into transferable shares of
beneficial interest, which shall be evidenced by the Share Register
maintained by the Trust or its agent, or, in the discretion of the
Trustees, be evidenced by certificates therefor, as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will
hold all property of every type and description which they are
acquiring or may hereafter acquire as such Trustees, together with
the proceeds thereof, in trust, to manage and dispose of the same
for the benefit of the holders of record from time to time of the
Shares being issued and to be issued hereunder and in the manner
and subject to the provisions hereof.
ARTICLE I
THE TRUST
1.1 Name. The name of the trust created by this
Declaration of Trust shall be Integrated Resources Series Trust
(hereinafter called the "Trust") and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the
word "Trust" wherever used in this Declaration of Trust, except
<PAGE> 6
where the context otherwise requires) shall refer to the Trustees
in their capacity as Trustees, and not individually or personally
and shall not refer to the officers, agents, employees or
Shareholders of the Trust or of such Trustees. Should the Trustees
determine that the use of such name is not practicable, legal or
convenient, they may use such other designation or they may adopt
such other name for the Trust as they deem proper and the Trust may
hold property and conduct its activities under such designation or
name.
1.2 Location. The Trust shall maintain a registered
office in Boston, Massachusetts, and may maintain such other
offices or places of business as the Trustees may from time to time
determine.
1.3 Nature of Trust. The Trust shall be of the type
commonly termed a "business" trust. The Trust is not intended to
be, shall not be deemed to be and shall not be treated as a general
partnership, limited partnership, joint venture, corporation or
joint stock company. The Shareholders shall be beneficiaries and
their relationship to the Trustees shall be solely in that capacity
in accordance with the rights conferred upon them hereunder. The
Trust is intended to have the status of a registered open-end
investment company under the Investment Company Act of 1940 and of
a "regulated investment company" as that term is defined in Section
851 of the Internal Revenue Code of 1954, and this Declaration of
Trust and all actions of the Trustees hereunder shall be construed
in accordance with such intent.
1.4 Definitions. As used in this Declaration of Trust,
the following terms shall have the following meanings unless the
context hereof otherwise requires:
"1940 Act" shall mean the Investment Company Act of 1940, as
amended from time to time.
"Adviser" and "Distributor" shall mean any Person or Persons
appointed, employed or contracted with by the Trustee under the
applicable provisions of Section 3.1 hereof.
"Affiliate" shall have the same meaning as the term Affiliated
Person under the 1940 Act.
"Assignment," "Commission," and "Prospectus" shall have the
meanings given them in the 1940 Act.
"Declaration of Trust" shall mean this Amended Declaration
of Trust as amended, restated, or modified from time to time.
References in this Amended Declaration of Trust to "Declaration,"
"hereof," "herein," "hereby" and "hereunder" shall be deemed to
refer to this Amended Declaration of Trust and shall not be limited
to the particular text, article, or section in which such words
appear.
<PAGE> 7
"Person" shall mean and include individuals, corporations,
limited partnerships, general partnerships, joint stock companies
or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts or other
entities whether or not legal entities and governments and agencies
and political subdivisions thereof.
"Portfolio" shall mean any subdivision of the Trust so
designated as such by the Trustees.
"Securities" shall mean any stock, shares, voting trust
certificates, bonds, debentures, notes, or other evidences of
indebtedness, secured or unsecured, convertible, subordinated or
otherwise or, in general, any instruments commonly known as
"securities" or any certificates of interest, shares or
participations in temporary or interim certificates for, guarantees
of, or any right to subscribe to, purchase or acquire any of the
foregoing.
"Shareholders" shall mean, as of any particular time, all
holders of record of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest of the
Trust as described in Article VI.
"Trust Property" shall mean, as of any particular time, any
and all property, real, personal, or otherwise, tangible or
intangible, which is transferred, conveyed or paid to the Trust or
Trustees and all income, profits and gains therefrom and which at
such time is owned or held by or for the account of the Trust or
the Trustees.
ARTICLE II
POWERS OF TRUSTEES
2.1 General. The Trustees shall have, without other or
further authorization, full, exclusive and absolute power, control
and authority over the Trust Property and over the business of the
Trust to the same extent as if the Trustees were the sole and
absolute owners of the Trust Property and business in their own
right, and with such powers of delegation as may be permitted by
this Declaration of Trust. The Trustees may do and perform such
acts and things as in their sole judgment and discretion are
necessary and proper for conducting the business and affairs of the
Trust or prompting the interests of the Trust and the Shareholders.
The enumeration of any specific power or authority herein shall not
be construed as limiting the aforesaid power or authority or any
specific power or authority. The Trustees shall have the power to
enter into commitments to make any investment, purchase or
acquisition, or to exercise any power authorized by this
Declaration of Trust. Such powers of the Trustees may be exercised
without order of or resort to any court.
<PAGE> 8
2.2 Investments. The Trustees shall have power, subject
in all respects to Article IV hereof,
(a) to conduct, operate and carry on the business of an investment
company; and
(b) for such consideration as they may deem proper, to
subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of negotiable or
nonnegotiable instruments, obligations, evidences of
indebtedness, bankers' acceptances, certificates of deposit
or indebtedness, commercial paper, securities subject to
repurchase agreements and other money market securities,
including, without limitation, those issued, guaranteed or
sponsored by the United States Government or its agencies or
instrumentalities, or international instrumentalities, or by
any of the several states of the United States of America or
their political subdivisions, agencies or instrumentalities,
or any bank or savings institution, or by any corporation
organized under the laws of the United States or of any
state, territory or possession thereof, or by corporations
organized under foreign laws; marketable straight debt
securities; securities (payable in U.S. dollars) of, or
guaranteed by, the government of Canada or of a Province of
Canada; common stock, securities convertible into common
stock, purchase rights, warrants and options; and nothing
herein shall be construed to mean the Trustees shall not
have the foregoing powers with respect to any Securities in
which the Trust may invest in accordance with Article IV
hereof. In the exercise of their powers, the Trustees shall
not be limited, except as otherwise provided hereunder, to
investing in Securities maturing before the possible
termination of the Trust, nor shall the Trustees be limited
by any law now or hereafter in effect limiting the
investments which may be held or retained by trustees or
other fiduciaries, but they shall have full authority and
power to make any and all investments within the limitations
of this Declaration of Trust, that they, in their absolute
discretion, shall determine, and without liability for loss,
even though such investments shall be a character or in
amount not considered proper for the investment of trust
funds.
2.3 Legal Title. Legal title to all the Trust Property
shall be vested in the Trustees as joint tenants and held by and
transferred to the Trustees, except that the Trustees shall have
power to cause legal title to any Trust to be held by, or in the
name of, one or more of the Trustees with suitable reference to
their trustee status, or in the name of the Trust, or in the name
of any other Person as nominee, on such terms, in such manner and
with such powers as the Trustees may determine, so long as in their
judgment the interest of the Trust is adequately protected.
<PAGE> 9
The right, title and interest of the Trustees in and to the
Trust Property shall vest automatically in all persons who may
hereafter become Trustees upon their due election and qualification
without any further act. upon the resignation, removal or death of
a Trustee, he (and in the event of his death, his estate) shall
automatically cease to have any right, title or interest in or to
any of the Trust Property, and the right, title and interest of
such Trustee in and to the Trust Property shall vest automatically
in the remaining Trustees without any further act. Such vesting
and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
2.4 Disposition of Assets. Subject in all respects to
Article IV hereof, the Trustees shall have power to sell, lease,
exchange or otherwise dispose of or grant options with respect to
any and all Trust free and clear of any and all trusts, at public
or private sale, for cash or on terms, without advertisement and
subject to such restrictions, stipulations, agreements and
reservations as they shall deem proper, and to execute and deliver
any deed or other instrument in connection with the foregoing. The
Trustees shall also have the power, subject in all respects to
Article IV hereof, to:
(a) rent, lease or hire from others for terms which may
extend beyond the termination of this Declaration
of Trust any property or rights to property, real,
personal or mixed, tangible or intangible, and,
except for real property, to own, manage, use and
hold such property and such rights;
(b) give consents and make contracts relating to Trust
Property or its use;
(c) grant security interests in or otherwise encumber
Trust Property in connection with borrowings; and
(d) release any Trust Property.
2.5 Taxes. The Trustees shall have power to pay all
taxes or assessments, of whatever kind or nature, imposed upon or
against the Trust or the Trustees in connection with the Trust
Property or upon or against the Trust Property or income or any
part thereof, to settle and compromise disputed tax liabilities
and, for the foregoing purposes, to make such returns and do all
other such acts and things as may be deemed by the Trustees to be
necessary or desirable.
2.6 Rights as Holder of Securities. The Trustees shall
have the power to exercise all the rights, powers and privileges
appertaining to the ownership of all or any Securities or other
property forming part of the Trust Property to the same extent that
any individual might and, without limiting the generality of the
foregoing, to vote or give any consent, request or notice or waive
any notice either in person or by proxy or power of attorney with
<PAGE> 10
or without power of substitution, to one or more Persons, which
proxies and powers of attorney may be for meetings or action
generally or for any particular meetings or action, and may include
the exercise of discretionary powers.
2.7 Delegation; Committees. The Trustees shall have
power, consistent with their continuing exclusive authority over
the management of the Trust, the conduct of its affairs and the
management and disposition of Trust Property, to designate from
time to time to such one or more of their number (who may be
designated as constituting a Committee of the Trustees) or to
officers, employees or agents of the Trust, the doing of such
things and the execution of such instruments, either in the name of
the Trust, or the names of the Trustees, or as their attorney or
attorneys, or otherwise as the Trustees may from time to time deem
expedient.
2.8 Collection. The Trustees shall have power to
collect, sue for, receive and receipt for all sums of money or
other property due to the Trust, to consent to extensions of the
time for payment, or to the renewal of any Securities or
obligations; to engage or intervene in, prosecute, defend,
compound, compromise, abandon or adjust by arbitration or otherwise
any actions, suits, proceedings, disputes, claims, demands or
things relating to the Trust Property; to foreclose any Security or
other instrument securing any notes, debentures, bonds, obligations
or contracts, by virtue of which any sums of money are owed to the
Trust; to exercise any power of sale held by them, and to convey
good title thereunder free of any and all trusts, and in connection
with any such foreclosure or sale, to purchase or otherwise acquire
title to any property; to be parties to reorganization and to
transfer to and deposit with any corporation, committee, voting
trustee or other Person any Securities or obligations of any
corporation, trust, association or other organization, the
Securities of which form a part of the Trust Property, for the
purpose of any reorganization of any such corporation, trust,
association or other organization, or otherwise, to participate in
any arrangement for enforcing or protecting the interests of the
Trustees as the owners or holders of such Securities of obligations
and to pay any assessment levied in connection with such
reorganization or arrangement; to extend the time (with or without
security) for the payment or delivery of any debts or property and
to execute and enter into releases, agreements and other
instruments; and to pay or satisfy any debts or claims upon any
evidence that the Trustees shall think sufficient.
2.9 Expenses. The Trustees shall have power to incur
and pay any charges or expenses which, in the opinion of the
Trustees, are necessary or incidental to or proper for carrying
out any of the purposes of this Declaration of Trust, and to reimburse
others for the payment therefor, and to pay appropriate
compensation or fees from the funds of the Trust to themselves as
Trustees and to Persons with whom the Trust has contracted or
transacted business. The Trustees shall fix the compensation of
<PAGE> 11
all officers, employees and Trustees. The Trustees may be paid
reasonable compensation for their general service as Trustees and
officers hereunder, and the Trustees may pay themselves or any one
or more of themselves such compensation for special services,
including legal services, as they in good faith may deem reasonable
and reimbursement for expenses reasonably incurred by themselves or
any one or more of themselves on behalf of the Trust. Each
Portfolio must buy the expenses directly attributable to it.
However, to the extent that the Trustees can effect cost savings by
the sharing of expenses they are authorized to do so. Such general
administrative expenses will be allocated on the basis of the asset
size of the respective Portfolios.
2.10 Borrowing. The Trustees shall have power to borrow
money only to the extent, for the purposes and in the manner
authorized by Article IV hereof.
2.11 Deposits. The Trustees shall have power to deposit
any monies or Securities included in the Trust Property with one or
more banks, trust companies or other banking institutions whether
or not such deposits will draw interest. Such deposits are to be
subject to withdrawal in such manner as the Trustees may determine,
and the Trust shall have no responsibility for any loss which may
by reason of the failure of the bank, trust company or other
banking institution with whom the monies or Securities have been
deposited.
2.12 Allocation. The Trustees shall have power to
determine whether monies or other assets received by the Trust
shall be charged or credited to income or capital or all between
income and capital, including the power to amortize or fail to
amortize any part or all of any premium or discount, to treat any
part of all the profit resulting from the maturity or sale of any
asset, whether purchased at a premium or at a discount, as income
or capital or apportion the same between income and capital, to
apportion the sale price of any asset between income and capital
and to determine in what manner any expenses or disbursements are
to be borne as between income and capital, whether or not in the
absence of the power and authority conferred by this Section 2.12,
such assets would be regarded as income or as capital or such
expense or disbursement would be charged to income or to capital;
to treat any dividend or other distribution on any investment as
income or capital or apportion the same between income and capital;
to provide or fail to provide reserves for depreciation,
amortization or obsolescence in respect of any Trust Property in
such amounts and by such methods and for such purposes as they
shall determine, and to allocate to the share of beneficial
interest account less than all of the consideration received for
Shares (but not less than the par value thereof) and to allocate
the balance thereof to paid-in capital, all as the Trustees may
reasonably deem proper.
2.13 Valuation. The Trustees shall have power to
determine in good faith, conclusively, the value of any of the
<PAGE> 12
Trust Property and of any services, Securities, assets or other
consideration hereafter to be acquired or disposed of by the Trust,
and to revalue the Trust Property.
2.14 Fiscal Year. The Trustees shall have power to
determine the year of the Trust and the method or form in which its
accounts shall be kept and, from time to time, to change the fiscal
year or method or form of accounts.
2.15 Concerning the Trust and Certain Affiliates.
(a) The Trust may enter into transactions with any
Affiliate of the Trust or of the Adviser or any Affiliate of any
Trustee, director, officer or employee of the Trust or of the
Adviser if (i) each such transaction has, after disclosure of such
affiliation, been approved or ratified by the affirmative vote of
a majority of the Trustees, including a majority of the Trustees
who are not Affiliates of any Person (other than the Trust) who is
a party to the transaction with the Trust, (ii) such transaction
is, in the opinion of the Trustees, on terms fair and reasonable to
the Trust and the Shareholders and at least as favorable to them as
arrangements for comparable transactions (of which the Trustees
have knowledge) with organizations unaffiliated with the Trust or
with the Person who is a party to the transaction with the Trust,
and (iii) such transaction is in accordance with the 1940 Act or an
exemption granted thereunder.
(b) Except as otherwise provided by this on of Trust and
in the absence of fraud, a contract, act or other transaction
between the Trust and any other Person, or in which the Trust is
interested, is valid and no Trustee, officer, employee or agent of
the Trust has any liability as a result of entering into any such
contract, act or transaction even though (a) one or more of the
Trustees, officers, employees or agents of the Trust is directly or
indirectly interested in or affiliated with, or are trustees,
partners, directors, employees, officers or agents of such other
Person, or (b) one or more of the Trustees, off employees or agents
of the Trust, individually or jointly with others, is a party or
are parties to, or directly interested in, or affiliated with, such
contract, act of transaction, provided that (i) such interest or
affiliation is disclosed to the Trustees and the Trustees
authorized such contract, act or other transaction by a vote of a
majority of the unaffiliated Trustees, or (ii) such interest or
affiliation is disclosed to the Shareholders, and such contract,
act or transaction is approved by the Shareholders.
(c) Any Trustee or officer, employee or agent of the
Trust may acquire, own, hold and dispose of Shares for his
individual account, and may exercise all rights of a holder of such
Shares to the same extent and in the same manner as if he were not
such a Trustee or officer, employee or agent. The Trustees shall
use their best efforts to obtain through the Adviser or other
Persons, a continuing and suitable investment program, consistent
with the investment policies and objectives of the Trust, and the
<PAGE> 13
Trustees shall be responsible for reviewing and approving or
rejecting investment opportunities presented by the Adviser or such
other Persons. Any Trustee or officer, employee or agent of the
Trust may, in his personal capacity, or in a capacity as trustee,
officer, director, stockholder, partner, member, adviser or
employee of any Person, have business interests and engage in
business activities in addition to those relating to the Trust,
which interests and activities may be similar to those of the Trust
and include the acquisition, syndication, holding, management,
operation or disposition, of his own account or for the account of
such Person, and each Trustee, officer, employee and agent of the
Trust shall be free of any obligation to present to the Trust any
investment opportunity which comes to him in any capacity other
than solely as Trustee, officer, employee or agent of the Trust,
even if such opportunity is of a character which, if presented to
the Trust, could be taken by the Trust.
Subject to the provisions of Article III hereof, any Trustee
or officer, employee or agent of the Trust may be interested as
Trustee, officer, director, stockholder, partner, member, adviser
or employee of, or otherwise have a direct or indirect interest in,
any Person who may be engaged to render advice or service to the
Trust, and may receive compensation from such Person as well as
compensation as Trustee, officer, employee or agent of the Trust or
otherwise hereunder. None of the activities referred to in this
paragraph shall be deemed to conflict with his duties and powers as
Trustee, officer, employee or agent of the Trust. To the extent
that any other provision of this Declaration of Trust conflicts
with, or is otherwise contrary to, the provisions of this Section
2.15 the provisions of this Section shall be deemed controlling.
2.16 Power to Contract. Subject to the provisions of
Sections 2.7 and 3.1 hereof with respect to delegation of authority
by the Trustees, the Trustees shall have power to appoint, employ
or contract with any Person (including one or more of themselves
and any corporation, partnership or trust Of which one or more of
them may be an Affiliate, subject to the applicable requirements of
Section 2.15 hereof) as the Trustees may deem necessary or
desirable for the transaction of the business of the Trust,
including any Person who, under the supervision of the Trustees,
may, among other things: serve as the Trust's investment adviser
and consultant in connection with policy decisions made by the
Trustees; furnish reports to the Trustees and provide research,
economic and statistical data in connection with the Trust's
investments; act as consultants, accountants, technical advisers,
attorneys, brokers, underwriters, corporate fiduciaries, escrow
agents, depositories, custodians or agents for collection, insurers
or insurance agents, transfer agents or registrars for Shares or in
any other capacity deemed by the Trustees necessary or desirable;
investigate, select, and, on behalf of the Trust, conduct relations
with Persons acting in such capacities and pay appropriate fees to,
and enter into appropriate contracts with, or employ, or retain
services performed or to be performed by, any of them in connection
with the investments acquired, sold, or otherwise disposed of, or
<PAGE> 14
committed, negotiated, or contemplated to be acquired, sold or
otherwise disposed of; substitute any other Person for any such
Person; act as attorney-in-fact or agent in the purchase or sale or
other disposition of investments, and in the handling, prosecuting
or settling of any s of the Trust, including the foreclosure or
other enforcement of any lien or security securing investments; and
assist in the performance of such ministerial functions necessary
in the management of the Trust as may be agreed upon with the
Trustees or officers of the Trust.
2.17 Insurance. The Trustees shall have the power to
purchase and pay for, entirely out of Trust Property, insurance
policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, including the Adviser or independent
contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser
or independent contractor, including any action taken or omitted
that may be determined to constitute negligence. However, such
policies shall not pay or reimburse any director, officer,
investment adviser or principal underwriter for any liability
arising by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties. Such policies are to
set forth a reasonable and fair means for determining whether
payment or reimbursement shall be made.
2.18 Pension and Other Plans. The Trustees shall have
the power to pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including,
without limitation, the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and
agents of the Trust.
2.19 Seal. The Trustees shall have the power to adopt and
use a seal for the Trust, but, unless otherwise required by the
Trustees, it shall not be necessary for the seal to be placed on,
and its absence shall not impair the validity of, any document,
instrument or other paper ex d and delivered by or on behalf of the
Trust.
2.20 Charitable Contributions. The Trustees shall have
the power to make donations, irrespective of benefit to the Trust,
for the public welfare or for community fund, hospital, charitable,
religious, educational, scientific, literary, civic or similar
purpose and, in time of war or other national emergency, in aid
thereof.
2.21 Indemnification. In addition to the mandatory
indemnification provided for in Section 5.3 hereof, the Trustees
<PAGE> 15
shall have power, to the extent permitted by law, to indemnify or
enter into agreements with respect to indemnification with any
Person with whom the Trust has dealings, including, without
limitation, any investment adviser, including the Adviser, or
independent contractor, to such extent as the Trustees shall
determine.
2.22 Remedies. Notwithstanding any provision in this
Declaration of Trust, when the Trustees deem that there is a
significant risk that an obligor to the Trust may default or is in
default under the terms of any obligation to the Trust, the
Trustees shall have power to pursue any remedies permitted by law
which, in their sole judgment, are in the interests of the Trust,
and the Trustees shall have the power to enter into any investment,
commitment or obligation of the Trust resulting from the pursuit of
such remedies as are necessary or desirable to dispose of property
acquired in the pursuit of such remedies.
2.23 Separate Accounting. The Trustees shall establish
the books and records for each Portfolio and maintain such records
separately as if each Portfolio were a separate legal entity.
2.24 Further Powers. The Trustees shall have power to do
all such other matters and things and execute all such instruments
as they deem necessary, proper or desirable in order to carry out,
promote or advance the interests of the Trust, although such
matters or things are not herein mentioned. Any determination as
to what is in the best interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of
this Declaration of Trust, the presumption shall be in favor of a
grant of power to the Trustees. The Trustees will not be required
to obtain any court order to deal with the Trust Property.
ARTICLE III
ADVISER AND DISTRIBUTOR
3.1 Appointment. The Trustees are responsible for the
general investment policy of the Trust, the distribution of its
Shares and for the general supervision of the business of the Trust
conducted by officers, agents, employees, investment advisers,
distributors or independent contractors of the Trust. However, the
Trustees are not required personally to conduct all of the business
of the Trust and, consistent with their ultimate responsibility as
stated herein, the Trustees may appoint, employ or contract with an
investment adviser (the "Adviser") and/or a distributor and
underwriter for the Trust's Shares (the "Distributor"), and may
grant or delegate such authority to the Adviser and/or Distributor
(pursuant to the terms of Section 2.16 hereof) or to any other
Person, the services of whom are obtained by the Adviser or
Distributor, as the Trustees may, in their sole discretion, deem to
be necessary or desirable, without regard to whether such authority
is normally granted or delegated by trustees.
<PAGE> 16
3.2 Provisions of Agreement. The Trustees shall not enter
into any agreement with the Adviser or Distributor pursuant to the
provisions of Section 3.1 hereof unless such agreement is
consistent with the provisions of Section 15 of the 1940 Act.
ARTICLE IV
INVESTMENTS
4.1 Statement of Investment Objectives and Policies. The
Trustees shall be guided in their actions by the Investment
Objectives and Policies as set forth in the most current effective
registration statement for the Trust as filed with the Securities
and Exchange Commission. Because the Trust is divided into
separate portfolios, the Trustees shall supervise the investments
and the recordkeeping for each Portfolio within the Trust as if it
was a separate legal entity. In addition to any other power
granted to the Trustees, the Trustees may, as they deem
appropriate, provide for additional Portfolios in a manner
consistent with the Investment Company Act.
4.2 Restrictions. Notwithstanding anything in this
Declaration of Trust which may be deemed to authorize the contrary,
the Trust, with respect to each Portfolio, shall conduct its
affairs in accordance with the Investment Limitations
(Restrictions) as set forth in the most current, effective
registration statement for the Trust as filed with the Securities
and Exchange Commission.
4.3 Percentage Restrictions. If the percentage
restrictions as set forth in the Investment Limitation described
in Section 4.2 above are adhered to at the time of each
investment, a later increase or decrease in percentage resulting
from a change in the value of the Trust's assets is not a
violation of such investment restrictions.
4.4 Amendment of Investment Objectives and Policies and
of Investment Limitations. The Investment Objectives and Policies
and the Investment Limitations are deemed to be fundamental
policies and may not be changed without the approval of the
holders of a majority of the outstanding voting shares of each
Portfolio affected which, for purposes herein, shall mean the
lesser of (i) 67% of the shares represented at a meeting which
more than 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares. A change in policy
affecting only one Portfolio may be effected only with the
approval of a majority of the outstanding shares of such
Portfolio.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 Liability to Third Persons. No Shareholder shall be
subject to any personal liability whatsoever, in tort, contract or
otherwise, to any other Person or Persons in connection with the
<PAGE> 17
Trust Property or the affairs of the Trust; and no Trustee,
officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever, in tort, contract or otherwise; to
any other Person or Persons in connection with Trust Property or
the affairs of the Trust, except for that arising from his bad
faith, willful misconduct, gross negligence or reckless disregard
of his duties or for his failure to act in good faith in the
reasonable belief that his action was in the best interest of the
Trust; and all such other Persons shall look solely to the Trust
Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder,
Trustee, officer, employee or agent, as such, of the Trust is made
a party to any suit or proceedings to enforce any such liability,
he shall not on account thereof be held to any personal liability.
5.2 Liability to Trust or to Shareholders. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust or to any Shareholder, Trustee, officer, employee or agent
of the Trust for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his own bad
faith, w misfeasance, gross negligence or reckless disregard for
his duties.
5.3 Indemnification. The Trust shall indemnify and
hold each Shareholder harmless from and against all and
liabilities, whether they proceed to judgment or are settled or
otherwise brought to a conclusion, to such Shareholder may become
subject by reason of his being or having been a Shareholder, and
shall reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this
Section 5.3 shall not exclude any other right to which such
Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though
not specifically provided herein; provided, however, that the
Trust shall have no liability to reimburse Shareholders for taxes
assessed against them by reason of their ownership of Shares, nor
for any losses suffered by reason of changes in the market value
of Shares.
Each officer, Trustee or agent of the Trust shall be
indemnified by the Trust to the full extent permitted under the
General Laws of the State of Massachusetts and the Investment
Company Act of 1940, as amended, except that such indemnity shall
not protect any such person against any liability to the Trust or
any shareholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct"). Indemnification
shall be made when (i) a final decision on the merits, by a court
or other body before whom the proceeding was brought, that the
person to be indemnified was not liable by reason of disabling
<PAGE> 18
conduct or, (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the person
to be indemnified was not liable by reason of disabling conduct,
by (a) the vote of a majority of a quorum of Trustees who are
"interested persons" of the company as defined in section 2(a)(19)
of the Investment Company Act of 1940, nor (b) an independent
legal counsel in a written opinion. The Trust may, by vote of a
majority of a quorum of Trustees who are not interested persons,
advance attorneys' fees or other expenses incurred by officers,
Trustees, investment advisers or principal underwriting, in
defending a proceeding upon the undertaking by or on behalf of the
person to be indemnified to repay the advance unless it is
ultimately determined that he is entitled to indemnification.
Such advance shall be subject to at least one of the following:
(1) the person to be indemnified shall provide a security for his
undertaking, (2) the Trust shall be insured against losses arising
by reason of any lawful advances, or (3) a majority of a quorum of
the disinterested, non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall determine,
based on a review of readily available facts, that there is reason
to believe that the person to be indemnified ultimately will be
found entitled to indemnification.
5.4 Surety Bonds. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the
performance of his duties.
5.5 Apparent Authority. No purchaser, lender, transfer
agent or other Person dealing with the Trustees or any officer,
employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by
the Trustees or by such officer, employee or agent or make in
concerning or be liable for the application of money or property
paid, loaned or delivered to or on the order of the Trustees or of
such officer, employee or agent.
5.6 Recitals. Any written instrument creating an
obligation of the Trust shall be conclusively taken to have been
executed or done by a Trustee or Trustees or an officer, employee
or agent of the Trust only in their or his capacity as Trustees or
Trustee under this Declaration of Trust or in the capacity of
officer, employee or agent of the Trust. Any written instrument
creating an obligation of the Trust shall refer to this Declaration
of Trust and contain a recital to the effect that the obligations
thereunder are not personally binding upon, nor shall resort be had
to the private property of, any of the Trustees, Shareholders,
officers, employees or agents of the Trust, but the Trust Property
or a specific portion thereof only shall be bound, and may contain
any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to impose personal
liability on any of the Trustees, Shareholders, officers, employees
or agents of the Trust.
<PAGE> 19
5.7 Reliance on Experts, Etc. Each Trustee and each
officer of the Trust shall, in the performance of his duties, be
fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon
the books of account or other records of the Trust, upon an opinion
of counsel or upon reports made to the Trust by any of its officers
or employees or by the Adviser, accountants, appraisers or other
experts or consultants selected with reasonable care by the
Trustees or officers of the Trust, regardless of whether such
counsel or expert may also be a Trustee.
5.8 Liability Insurance. The Trustees shall, at all
times, maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover all foreseeable tort liability to the
extent available at reasonable rates.
ARTICLE VI
CHARACTERISTICS OF SHARES
6.1 General. The interest of the Shareholders hereunder
shall be divided into Shares, all of one and having a par value of
$.Ol per Share. The number of Shares authorized hereunder is
unlimited. All shares shall have equal non-cumulative voting,
distribution, liquidation and other rights, shall be fully paid and
non-assessable and shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights of any kind.
Shareholders are entitled to one vote for each full share and
fractional votes for fractional shares. The ownership of the Trust
Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and
the Shareholders shall have no interest therein other than the
beneficial interest conferred by their Shares, and they shall have
no right to call for any partition or division of any property,
profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an
assessment of any kind by vote of their ownership of Shares, except
as provided in Section 10.5 hereof. The Shares shall be personal
property giving only the rights specifically set forth in this
Declaration of Trust.
6.2 Classes of Stock.
(a) The shares shall be divisible into Series. Prior to the
issuance of any shares, the Trustees may, by resolution, designate
them as a series and give them the name of the Portfolio of the
Trust with respect to which such shares will be issued.
(b) The holders of each share of stock of the Trust
shall be entitled to one vote for each full share and a fractional
vote for each fractional share of stock, irrespective of the
Series, then standing in his name on the books of the Trust. On
any matter submitted to a vote of shareholders, all shares of the
Trust then issued and outstanding and entitled to vote shall be
<PAGE> 20
voted in the aggregate and not by series, except that (1) when
otherwise expressly required by Massachusetts Law, the Investment
Company Act of 1940 or this Declaration of Trust, shares shall be
voted by individual series; (2) shares of the respective series are
entitled to vote in matters concerning only that series; (3)
fundamental policies, as specified in Article 4 hereof, may not be
changed, unless a change affects only one series, without the
approval of the holders of a majority of the Trust's outstanding
voting shares, including a majority (as defined under the
Investment Company Act of 1940) of the shares of each Series.
(c) Each series of stock of the Trust shall have the
following powers, preferences or other special rights, and
qualifications, restrictions and limitations thereof shall be as
follows:
(1) The Trustees may, from time to time, declare and
pay dividends or distributions, in stock or in cash, on any
or all series of stock, the amount of such dividends and
distributions and the payment of them being wholly in the
discretion of the Trustees.
(i) Dividends or distributions on shares of any
series of stock shall be paid only out of earned
surplus or other lawfully available assets belonging to
such class.
(ii) Inasmuch as one goal of the Trust is to qualify
as a "regulated investment company" under the Internal
Revenue Code of 1954, as amended, or any successor or
comparable statute thereto, and Regulations promulgated
thereunder, and inasmuch as the computation of net
income and gains for Federal income tax purposes may vary from
the computation thereof on the books of the Trust, the Trustees
shall have the power in their discretion to distribute in any
fiscal years as dividends, including dividends designated in
whole or in part as capital gains distributions, amounts
sufficient in the opinion of the Trustees, to enable the Trust
to qualify as a regulated investment company and to avoid
liability for the Trust for Federal income tax in respect of
that year. In furtherance and not in limitation of the
foregoing, in the event that a series of shares has a net
capital loss for a fiscal year, and to the extent that a net
capital loss for a fiscal year offsets net capital gains from
one or more of the other series, the amount to be deemed
available for distribution to the one or more series with the
net capital gain may be reduced by the amount offset.
(2) The assets belonging to any series of stock shall
be charged with the liabilities in respect to such series
and shall also be charged with its share of the general
liabilities of the Trust in proportion to the asset values
<PAGE> 21
of the respective series. The determination of the
Trustees shall be conclusive as to the amount of
Liabilities, the allocation of the same as to a given
series and as to whether the same or general assets of the
Trust are allocable to one or more series.
6.3 Evidence of Share Ownership. Evidence of Share
ownership shall be reflected in the Share Register maintained by or
on behalf of the Trust pursuant to Section 7.1 hereof, and the
Trust shall not be required to issue certificates as evidence of
Share ownership; provided, however, that the Trustees may, in their
discretion, authorize the use of certificates as a means of
evidencing the ownership of Shares by setting forth in the Trust's
By-laws or in a resolution, provisions for the form of certificates
and regulations governing their execution, issuance and transfer.
Such certificates shall be treated as negotiable and title thereto
and to the Shares represented thereby shall be transferred by
delivery thereof to the same extent in all respects as a stock
certificate, and the Shares represented thereby, of a Massachusetts
business corporation.
6.4 Death of Shareholders. The death of a Shareholder
during the continuance of the Trust shall not terminate this
Declaration of Trust nor give such Shareholder's legal
representatives a right to an accounting or to take any action in
the courts or otherwise against other Shareholders or the Trustees
or the Trust Property, but shall simply entitle the legal
representative of the deceased Shareholder to require the
recordation of such legal representative ownership of or rights in
the deceased Shareholder's Shares and, upon the acceptance thereof,
such legal representative shall succeed to all the rights of the
deceased Shareholder under this Declaration of Trust.
6.5 Repurchase of Shares. The Trustees may, on behalf
of the Trust, purchase or otherwise acquire outstanding Shares from
time to time for such consideration and on such terms as they may
deem proper. Shares so purchased or acquired by the Trustees for
the account of the Trust shall not, so long as they belong to the
Trust, receive distributions (other than, at the option of the
Trustees, distributions in Shares) or be entitled to any voting
rights. Such shares may, in the discretion of the Trustees, be
canceled and the number of Shares issued thereby reduced, or such
Shares may, in the discretion of the Trustees, be held in the
treasury and may be disposed of by the Trustees at such time or
times, to such party or parties and for such considerations as the
Trustees may determine.
6.6 Trustees as Shareholders. Any Trustee in his
individual capacity may purchase and otherwise acquire or sell and
otherwise dispose of Shares or other Securities issued by the Trust
and may exercise all the rights of a Shareholder to the same extent
as though he were not a Trustee.
<PAGE> 22
6.7 Information from Shareholders. The holders of
Shares or other securities Of the Trust shall, upon demand,
disclose to the Trustees in writing such information with respect
to direct and indirect ownership of Shares or other Securities of
the Trust, as the Trustees reasonably deem necessary, to comply
with the provisions of the Internal Revenue Code, or to comply with
the requirements of any other taxing authority.
6.8 Redemptions. All outstanding Shares may be redeemed
at the option of the holders thereof, upon and subject to the terms
and conditions provided in this Declaration of Trust. The Trust
shall, upon application of any Shareholder, redeem or repurchase
from such Shareholder outstanding Shares for an amount per share
determined by the application of a formula adopted for such purpose
by the Trustees (which formula shall be consistent with the 1940
Act and the rules and regulations promulgated thereunder); provided
that such amount per share shall not exceed the cash equivalent of
the proportionate interest of each share in the assets of the Trust
at the time of the purchase or redemption. The procedures for
effecting redemption shall be as adopted by the Trustees and set
forth in the Prospectus from time to time.
6.9 Suspension of Redemption; Postponement of Payment.
The Trustees may suspend the right of redemption or postpone the
date of payment for the whole or any part of any period (i) during
which the New York Stock Exchange is closed other than customary
weekend and holiday closings; (ii) during which trading on the New
York Stock Exchange is restricted; (iii) during which an emergency
as a result of which disposal by the Trust of Securities owned by
it is not reasonably practicable or it is not reasonably
practicable for the Trust to determine fairly the value of its net
assets; or (iv) during any other period when the Securities and
Exchange Commission (or any succeeding governmental authority) may
for the protection of security holders of the Trust by order permit
suspension of the right of redemption or postponement of the date
of payment on redemption; provided that applicable rules and
regulations of the Commission (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in
(ii), (iii) or (iv) exist. Such suspensions shall take effect at
such time as the Trustees shall specify but not later than the
close of business on the business day next following the
declaration of suspension and, thereafter, there shall be no right
of redemption or payment until the Trustees shall declare the
suspension at an end, except that the suspension shall terminate in
any event on the first day on which said exchange shall have
reopened or the period specified in (ii),(iii) or (iv) shall have
expired (as to which in the absence of an official ruling by said
commission or succeeding authority, the determination of the
Trustees shall be conclusive). In the case of a suspension of the
right of redemption, a Shareholder may either withdraw his request
for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
ARTICLE VII
<PAGE> 23
RECORD AND TRANSFER OF SHARES
7.1 Share Register. A register shall be kept by or on
behalf of the Trust under the direction of the Trustees, which
shall contain the names and addresses of the shareholders and the
number of shares held by them respectively and a record of all
transfers thereof. Such register shall be conclusive as to who are
the holders of the Shares. Only Shareholders whose ownership of
Shares is recorded on such register shall be entitled to vote or to
receive distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive any
distribution, nor to have notice given to him as herein provided,
until he has given his address to a transfer agent or such other
officer or agent of the Trust as shall keep the register for entry
thereon.
7.2 Transfer Agent. The Trustees shall have power to
employ, within or without the Commonwealth of Massachusetts, a
transfer agent or transfer agents and, if they so determine, a
registrar or registrars. The transfer agent or transfer agents may
keep the reg and record therein the original issues and transfers
of Shares. Any such transfer agents and registrars shall perform
the duties usually performed by transfer agents and registrars of
certificates and shares of stock in a corporation, except as
modified by the Trustees.
7.3 Owner of Record. Any person becoming entitled to
any Share in consequence of the death, bankruptcy or insolvency of
any Shareholder, or otherwise, by operation of law, shall be
recorded as holder of such Shares. But until such record is made,
the Shareholder of record shall be deemed to be the holder of such
Shares for all purposes hereof and neither the Trustees nor any
transfer agent or registrar nor any officer or agent of the Trust
shall be affected by any notice of such death, bankruptcy,
insolvency or other event.
7.4 Transfers of Shares. Shares shall be transferable
on the records of the Trust (other than by operation of law only by
the record holder thereof or by his agent thereinto duly authorized
in writing upon delivery to the Trust or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such
evidence of the genuineness of execution and authorization and of
other matters as may reasonably be required by the Trust or the
transfer agent. Upon such deliver, the transfer shall be recorded
on the register of the Trust. But until such record is made, the
Shareholder of record shall be deemed to be the holder of such
Shares for all purposes hereof and neither the Trustees nor the
Trust nor any transfer agent or registrar nor any officer or agent
of the Trust shall be affected by any notice of the proposed
transfer.
7.5 Limitation of Fiduciary Responsibility. The Trustees
shall not, nor shall the Shareholders or any officer, transfer
agent or other agent of the Trust, be bound to see to the execution
<PAGE> 24
of any trust, express, implied or constructive, or of any charge,
pledge or equity to which any of the Shares or any interest therein
are subject, or to ascertain or inquire whether any sale or
transfer or any such Shares or interest therein by any such
Shareholder or his personal representative is authorized by such
trust, charge, pledge or equity, or to recognize any Person as
having any interest therein except the Persons recorded as such
Shareholders. The receipt of the Person in whose name any Share is
recorded, or, if such Share is recorded in the names of more than
one Person, the receipt of any one such Persons or of the duly
authorized agent of any such Person shall be a sufficient discharge
for all money, Securities and other property payable, issuable or
deliverable in respect of such Share and from all liability to see
the proper application thereof.
7.6 Notices. Any and all notices to which Shareholders
hereunder may be entitled, and any and all communications, shall be
deemed duly served or given if mailed, postage prepaid, addressed
to Shareholders of record at their last known post office addresses
as recorded on the Share register provided for in Section 7.1
hereof.
ARTICLE VIII
SHAREHOLDERS
8.1 Meetings of Shareholders. Meetings of the
Shareholders may be called at any time by a majority of the
Trustees and shall be called by any Trustee upon written request of
Shareholders holding in the aggregate not less than ten (10%)
percent of the outstanding Shares having voting rights, such
request specifying the purpose or purposes for which such meeting
is to be called. Any such meeting shall be held within or without
the Commonwealth of Massachusetts on such day and at such time as
the Trustees shall designate. In the event that the number of
Trustees elected by vote of the Shareholders shall, at any time,
fall below a majority, a Special Meeting shall be called at the
earliest practicable time for the election of Trustees; provided,
however, that such meeting shall, in any event be held within sixty
(60) days of the date of the number of Trustees elected by vote of
the Shareholders falls below a majority.
8.2 Quorums. The holders of a majority of outstanding
Shares, entitled to vote at such a meeting, present in person or by
proxy shall constitute a quorum at any meeting of Shareholders.
8.3 Notice of Meetings. Notice of all meetings of the
Shareholders entitled to vote at such a meeting, stating the time,
place and purposes of the meeting, shall be given by the Trustees
by mail to each Shareholder at his registered address, mailed at
least ten (10) days and not more than sixty (60) days before the
meeting. Only the business stated in the notice of the meeting
shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice.
<PAGE> 25
8.4 Record Date for Meetings. For the purposes of
determining the Shareholders who are entitled to vote or act at any
meeting or any adjournment thereof, or who are entitled to
participate in any dividend or distribution, or for the purpose of
any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding thirty (30) days, as
the Trustees may determine; or without closing the transfer books,
the Trustees may fix a date not more than sixty (60) days prior to
the date of any meeting of Shareholders or other actions as a
record date for the determination of Shareholders entitled to vote
at such meeting or any adjournment thereof or to be treated as
Shareholders of record for purposes of such other action, except
for dividend payments which shall be governed by Section 10.1, and
any Shareholder who was a Shareholder at the time so fixed shall be
entitled to vote at such meeting or any adjournment thereof, even
though he has since that date disposed of his Shares, and no
Shareholder becoming such after that date shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as
a Shareholder of record for purposes of such other action.
8.5 Proxies, Etc. At any meeting of Shareholders, any
holder of Shares entitled to vote thereat may vote by proxy,
provided that no proxy shall be voted at any meeting unless it
shall have been placed on file with the Secretary, or with such
other officer or agent of the Trust as the Secretary may direct,
for the verification prior to the time at which such vote shall be
taken. Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or one
or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote and each full share shall be entitled to
one vote and fractional shares shall be entitled to fractional
votes. When any Share is held jointly by several persons, any one
of them may vote at any meeting in person or by proxy in respect of
such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote
shall not be received in respect of such Share. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and
subject to guardianship or to the legal control of any other person
as regards the charge or management of such Share, he may vote by
his guardian or such other person appointed or having such control,
and such vote may be given in person or by proxy.
8.6 Reports. The Trustees shall cause to be prepared at
least annually a report of operations containing a balance sheet
and statements of income and undistributed income of the Trust
prepared in conformity with generally accepted accounting
principles and an opinion of an independent certified public
accountant on such financial statements based on an examination of
the books and records of the Trust, and made in accordance with
generally accepted auditing standards. A signed copy of such
<PAGE> 26
report and opinion shall be filed with the Trustee within sixty
(60) days after the close of the period covered thereby. Copies of
such reports shall be mailed to all Shareholders of record within
the time required by the 1940 Act and in any event within a
reasonable period preceding the annual meeting of Shareholders.
The Trustees shall, in addition, furnish to the Shareholders, at
least semiannually, an interim report containing an unaudited
balance sheet of the Trust as at the end of such semiannual period
and a statement of income and surplus for the period from the
beginning of the current fiscal year to the end of such semiannual
period.
8.7 Inspection of Records. The records of the Trust
shall be open to inspections by Shareholders to the same extent as
is permitted shareholders of a Massachusetts business corporation.
8.8 Shareholder Action by Written Consent. Any action
taken by Shareholders may be taken without a meeting if a majority
of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of
this Declaration of Trust) consent to the action in writing and the
written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
8.9 Voting Rights of Shareholders. The Shareholders
shall be entitled to vote only upon the following matters: (a)
election of Trustees as provided in Section 9.2 and Section 9.4
hereof; (b) amendment of the Declaration of Trust or termination of
this Trust as provided in Section 4.4 and Section 13.1 hereof; (c)
reorganization of this Trust as provided in Section 13.2 hereof;
and (d) all matters for which the approval of the Shareholders of
the Trust is required by the Investment Company Act of 1940, as
amended. Except with respect to the foregoing matters specified in
this Section 8.9, no action taken by the Shareholders at any
meeting shall in any way bind the Trustees.
ARTICLE IX
TRUSTEES
9.1 Number and Qualification. The number of Trustees
shall be fixed from time to time by resolution of a majority of the
Trustees then in office, provided, however, that the number of
Trustees shall in no event be less than three (3) or more than
fifteen (15). Any vacancy created by an increase in Trustees may
be filled by the appointment of an individual having the
qualifications described in this Section 9.1 made by a resolution
of a majority of the Trustees then in office. Any such appointment
shall not become effective, however, until the individual named in
the resolution of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of this
Declaration of Trust. No reduction in the number of Trustees shall
have the effect of removing any Trustee from office prior to the
expiration of his term. Whenever a vacancy in the number of
<PAGE> 27
Trustees shall occur, until-such vacancy is filled as provided in
Section 9.4 hereof, the Trustees or Trustee continuing in office,
regardless of their number, shall have all the powers granted to
the Trustees and shall discharge all the duties imposed upon the
Trustees by this on of Trust. A Trustee shall be an individual at
least twenty-one (21) years of age who is not under legal
disability. The Trustees, in their capacity as Trustees, shall not
be required to devote their entire time to the business and affairs
of the Trust.
9.2 Term and Election. Each Trustee named herein, or
elected or appointed as provided in Section 9.1 and 9.4 hereof
shall (except in the event of resignations or removals or vacancies
pursuant to Sections 9.3 or 9.4 hereof) hold office until his
successor has been elected and has qualified to serve as Trustee.
Election of Trustees shall be by the affirmative vote of the
holders of at least a majority of the Shares entitled to vote
present in person or by proxy at such meeting. The election of any
Trustee (other than an individual who was serving as a Trustee
immediately prior to such election) pursuant to this Section 9.2
shall not become effective unless and until such person shall have
in writing accepted his election and agreed to be bound by the
terms of this Declaration of Trust. Trustees may, but need not,
own Shares.
9.3 Resignation and Removal Any Trustee may resign
(without need for prior or subsequent accounting) by an instrument
in writing signed by him and delivered or mailed to the Chairman,
the President or the Secretary (referred to in Section 9.6 hereof)
and such resignation shall be effective upon such delivery, or at
a later date according to the terms of the notice. Any of the
Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be @ than the number required by
Section 9.1 hereof) with cause, by the action of two-thirds (2/3)
of the remaining Trustees. Upon the resignation or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require
for the purpose of conveying to the Trust or the remaining Trustees
any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in
the preceding sentence.
No natural person shall serve as Trustee after the holders
of record of not less than two-thirds of the outstanding shares of
beneficial interest in the Trust have declared that he be removed
from that office either by declaration in writing filed with the
custodian of the securities of the Trust or by votes cast in person
or by proxy at a meeting called for the purpose.
The Trustees shall promptly call a meeting of shareholders
for the purpose of voting upon the question of removal if any such
Trustee or Trustees are requested in writing to do so by the record
<PAGE> 28
holders of not less than ten (10) per centum of the outstanding
shares.
Whenever ten or more shareholders of record, who have been
for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at
least $25,000 or at least one (1) per centum of the outstanding
shares, which is less, shall apply to the Trustees in writing, g
that they wish to communicate with other shareholders with a view
to obtaining signatures to a request for a meeting for the purposes
of removing Trustee(s) and accompanied by a form of communication
and request which they wish to transmit, the Trustees shall within
five (5) business days after receipt of such application either:
(1) afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the
books of the Trust; or
(2) inform such applicants as to the approximate number of
shareholders of record, and the approximate cost of
mailing to them the proposed communication and form of
request.
If the Trustees elect to follow the course specified in (2)
above, upon the written request of such applicants, accompanied by
a tender of the material to be mailed and of the reasonable
expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as
recorded on the books, unless within five (5) business days after
such tender the Trustees shall mail to such applicants and file
with the Securities and Exchange Commission, together with a copy
of the material to be mailed, a written statement signed by at
least a majority of the Trustees to the effect that in their
opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained
therein not misleading, or would be in violation of applicable law,
and specifying the basis of such opinion.
9.4 Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
resignation, bankruptcy, adjudicated incompetence or other
incapacity to exercise the duties of the office, or removal of a
Trustee. No such vacancy shall operate to annul this Declaration
of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust, and title to any Trust Property
held in the name of any Trustee alone, jointly with one or more of
the other Trustees or otherwise, shall, in the event of the death,
resignation, removal, bankruptcy, adjudicated incompetence or other
incapacity to exercise the duties of the office of such Trustee,
vest in the continuing or surviving Trustees without necessity of
any further act or conveyance. In the case of an existing vacancy
(other than by reason of increase in the number of Trustees) the
holders of at least a majority of the Shares entitled to vote,
acting at any meeting of Shareholders called for the purpose, or a
<PAGE> 29
majority of the Trustees continuing in office acting by resolution,
may fill such vacancy, and any Trustee so elected by the Trustees
shall hold office until his successor has been elected and has
qualified to serve as Trustee. Upon the effectiveness of any such
appointment as provided in this Section, the Trust Property shall
vest in such new Trustee jointly with the continuing or surviving
Trustees without the necessity of any further act or conveyance;
provided, however, that no such election or appointment as provided
in this Section 9.4 shall become effective unless or until the new
Trustee shall have accepted in writing his appointment and agreed
to be bound by the terms of this Declaration of Trust.
9.5 Meetings. Meetings of the Trustees shall be held
from time to time upon the call of the Chairman, the President, the
Secretary or any two Trustees. Regular meetings of the Trustees
may be held without call or notice at a time and place fixed by the
By-laws or by resolution of the Trustees. Notice of any other
meeting shall be mailed or otherwise given not less than forty-eight
(48) hours before the meeting but may be waived in writing by
any Trustee either before or after such meeting. The attendance of
a Trustee at a meeting shall constitute a waiver of such meeting
except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the
meeting has not been lawfully called or convened. The Trustees may
act with or without a meeting. A quorum for all meetings of the
Trustees shall be a majority of the Trustees. Subject to Section
2.15 hereof and unless specifically provided otherwise in this on
of Trust, any action of the Trustees may be taken at a meeting by
vote of a majority of the Trustees present (a quorum being present)
or, without a meeting, by written consents of a majority of the
Trustees. Any agreement, or other instrument or writing executed
by one or more of the Trustees or by any authorized Person shall be
valid and binding upon the Trustees and upon the Trust when
authorized or ratified by action of the Trustees as provided in
this Declaration of Trust.
Any committee of the Trustees, including an Executive
Committee, if any, may act with or without a meeting. A quorum for
all meetings of any such committee shall be a majority of the
members thereof. Unless otherwise specifically provided in this
Declaration of Trust, any action of any such committee may be taken
at a meeting by vote of a majority of the members present (a quorum
being present) or, without a meeting, by written consent of a
majority of the members.
With respect to actions of the Trustees and any committee
thereof, Trustees who are affiliated within the meaning of Section
2.15 hereof or otherwise interested in any action to be taken may
be counted for quorum purposes under this Section 9.5 and shall be
entitled to vote to the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by utilizing conference,
telephone or similar communications equipment by means of which all
<PAGE> 30
persons participating in the meeting can hear each other and
participation in a meeting pursuant to such communications shall
constitute presence in person at such meeting. The minutes of any
meeting of Trustees held by utilizing such communications equipment
shall be prepared in the same manner as those of a meeting of
Trustees held in person.
9.6 Officers. The Trustees shall elect a Chairman from
among their number and shall appoint a President, Secretary and
Treasurer and such other officers as they deem necessary or
appropriate to carry out the business of the Trust. Such officers
shall be appointed and hold office in accordance with By-laws
provisions.
9.7 By-laws. The Trustees may adopt and, from time to
time, amend or repeal By-laws for the conduct of the business of
the Trust, and in such By-laws may define the duties of the
respective officers, agents, employees and representatives.
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
10.1 General. The Trustees may, from time to time,
declare and pay to the Shareholders, in proportion to their
respective ownership of Shares, out of the earnings, net profits or
surplus (including paid-in capital), capital or assets in the hands
of the Trustees, such dividends or other distributions as they may
determine. The declaration and payment of such dividends or other
distributions and the determination of earnings, profits, surplus
(including paid-in capital) and capital available for dividends and
other purposes shall lie wholly in the discretion of the Trustees
and no Shareholder shall be entitled to receive or be paid any
dividends or to receive any distribution except as determined by
the Trustees in the exercise of said discretion. The Trustees may,
in addition, from time to time in their discretion, declare and pay
as dividends or other distributions such additional amounts,
whether or not out of earnings, profits and surplus available
therefor, sufficient to enable the Trust to avoid or reduce its
liability for Federal income taxes, inasmuch as the computations of
net income and gains for Federal income tax purposes may vary from
the computations thereof on the books of the Trust. Any of all
such dividends or other distributions may be made, in whole or in
part, in cash, property or other assets or obligations of the
Trust, as the Trustees may in their sole discretion from time to
time determine. The Trustees may also distribute to the
Shareholders, in proportion to their respective ownership of
Shares, additional Shares issuable hereunder in such manner and on
such terms as they may deem proper. Any or all such dividends or
distributions may be made among the Shareholders of record at the
time of declaring a distribution or among the Shareholders of
record at such later date as the Trustees shall determine.
<PAGE> 31
10.2 Retained Earnings. The Trustees except as provided in
Section 10.1 hereof, may always retain from the net profits such
amount as they may deem necessary to pay the debts or expenses of
the Trust, to meet obligations of the Trust, to establish reserves
or as they may deem desirable to use in the conduct of its affairs
or to retain for future requirements or extensions of the business
of the Trust.
10.3 Source of Distributions. Shareholders shall receive
annually a statement in writing advising the Shareholders of the
source of the funds so distributed so that distributions of
ordinary income, return of capital and capital gains income will be
clearly distinguished.
10.4 Net Asset Value. The net asset value of each
outstanding Share of the Trust shall be determined once on each
business day, as of the close of trading on the New York Stock
Exchange or at any other time as the Trustees, by resolution, may
determine and which is in compliance with the 1940 Act. The method
of determination of net asset value shall be determined by the
Trustees and shall be set forth in the Prospectus. The power and
duty to make the daily calculations may be delegated by the
Trustees to the Adviser, the Custodian, the Transfer Agent, the
Distributor or such other person as the Trustees by resolution may
determine. The Trustees may suspend the daily determination of net
asset value to the extent permitted by the 1940 Act.
10.5 Power to Modify Valuation Procedures. Notwithstanding
any of the foregoing provisions of this Article X, the Trustees may
prescribe, in their absolute discretion, such other bases and time
for determining the per share net asset value of the Trust's Shares
or net income, or the declaration and payment of dividends and
distributions as they may deem necessary or desirable to enable the
Trust to comply with any provision of the 1940 Act, or any rule or
regulation thereunder, including any rule or regulation adopted
pursuant to Section 22 of the 1940 Act by the Commission or any
securities association registered under the Securities Exchange Act
of 1934, or any order of exemption issued by said Commission, all
as in effect now or as hereafter amended or modified.
ARTICLE XI
CUSTODIAN
11.1 Appointment and Duties. The Trustees shall, at all
times, employ a bank or trust company organized under the laws of
the United States of America or one of the several states thereof
having a capital, surplus and undivided profits of at least two
million dollars ($2,000,000) as Custodian with authority as its
agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-laws of the
Trust and the 1940 Act:
(a) to hold the securities owned by the Trust and deliver
the same upon written order;
<PAGE> 32
(b) to receive and receipt for any monies due to the Trust
and deposit the same in its own banking department or
elsewhere as the Trustees may direct;
(c) to disburse such funds upon orders or vouchers;
(d) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and
accounting services;
(e) if authorized to do so by the Trustees, to compute the
net income of the Trust;
all upon such basis of compensation as may be agreed upon between
the Trustees and Custodian.
The Trust may also employ the Custodian as its agent for
other purposes.
The Trustees may also authorize the Custodian to employ one
or more Sub-Custodians from time to time to perform such of the
acts and services of the and upon such terms and conditions as may
be agreed upon between the Custodian and such Sub-Custodian and
approved by the Trustees, provided that, in every case, such Sub-
Custodian shall be a bank or trust company organized under the laws
of the United States of America or one of the several states
thereof and having capital, surplus and undivided profits of at
least two million dollars ($2,000,000).
11.2 Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees
may direct the Custodian to deposit all or any part of the
Securities owned by the Trust in a system for the central handling
of Securities established by a national securities exchange or a
national securities association registered with the Commission
under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with
the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities,
provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
12.1 Recording. This Declaration of Trust and any
amendment hereto shall be filed in the office of the Secretary of
the Commonwealth of Massachusetts and may also be filed or recorded
in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that, such action was duly taken
<PAGE> 33
in a manner provided herein; and unless such amendment or such
certificate filed with the State of the Commonwealth of
Massachusetts sets forth some earlier or later time for the
effectiveness of such amendment, such amendment shall be effective
upon its filing with the Secretary of said Commonwealth. An
amended Declaration, containing the original Declaration and all
amendments theretofore made, may be executed any time or from time
to time by a majority of the Trustees and shall, upon filing with
the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various
amendments thereto.
ARTICLE XIII
AMENDMENT OR TERMINATION OF TRUST
13.1 Amendment or Termination. The provisions of this
Declaration of Trust may be amended or altered (except as to the
limitations on personal liability of the Shareholders and Trustees
and the prohibition of assessments upon Shareholders), or the Trust
may be terminated, at any meeting of the Shareholders called for
the purpose, by the affirmative vote of the holders of a majority
of the Shares then outstanding and entitled to vote, or by an
instrument or instruments in writing, without a meeting, signed by
a majority of the Trustees and the holders of a majority of such
Shares; provided, however, that the Trustees may, from time to time
by a two-thirds (2/3) vote of the Trustees, and after fifteen (15)
days prior written notice to the Shareholders, amend or alter the
provisions of this Declaration of Trust, without the vote or assent
of the Shareholders, to the extent deemed by the Trustees in good
faith to be necessary to conform this Declaration to the
Requirements of the investment company provisions of the Internal
Revenue Code or of the applicable federal laws or regulations or
any interpretation thereof by a court or other governmental agency
of competent jurisdiction but the Trustees shall not be liable for
failing to do so. Notwithstanding the foregoing, (i) no amendment
may be made pursuant to this Section 13.1 which would change any
rights with respect to any outstanding Shares of the Trust by
reducing the amount payable thereon upon liquidation of the Trust
or by diminishing or eliminating any voting rights pertaining
thereto, except with the vote or written consent of the holders of
two-thirds (2/3) of the outstanding Shares entitled to vote
thereon; and (ii) no amendment may be made with respect to the
investment restrictions contained in Section 4.2 hereof without the
affirmative vote of the holders of a majority (as defined in the
1940 Act) of the Shares of the class of stock affected by such
change. Upon the termination of the Trust pursuant to this Section
13.1:
(a) The Trust shall carry on no business except for
the purpose of winding up its affairs.
(b) The Trustees shall proceed to wind up the affairs of
the Trust and all of the powers of the Trustees under
<PAGE> 34
this Declaration of Trust shall continue until the
affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the
contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise of all
or any part of the remaining Trust Property to one or
more persons at public or private sale for
consideration which may consist in whole or in part of
cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other
acts appropriate to liquidate its business; provided
that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially
all of the Trust Property shall require approval of
the principal terms of the transaction and the nature
and amount of the consideration by affirmative vote of
not less than a majority of all outstanding Shares
entitled to vote.
(c) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements, as they
deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in
kind or partly of each, among the Shareholders
according to their respective rights.
Upon termination of the Trust and distribution to the Shareholders
as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing
setting forth the fact of such termination, and the Trustees shall
thereupon be discharged from all further liabilities and duties
hereunder, and the right, title and interest of all Shareholders
shall cease and be canceled and discharged.
A certification in recordable form signed by a majority of
the Trustees setting forth an amendment and reciting that it was
duly adopted by the Shareholders or by the Trustees as aforesaid or
a copy of the Declaration, as amended, in recordable form, and
executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the
Trust.
Notwithstanding any other provision hereof, until such time
as a Registration Statement under the Securities Act of 1933, as
amended, covering the first public offering of Shares shall have
become effective, this Declaration of Trust may be terminated or
amended in any respect by the affirmative vote of a majority of the
Trustees or by an instrument signed by a majority of the Trustees.
13.2 Power to Effect Reorganization. The Trustees, by
vote or written approval of a majority of the Trustees, may select
or direct the organization of a corporation, association, trust or
<PAGE> 35
other organization with which the Trust may merge, or which shall
take over the Trust Property and carry on the affairs of the Trust,
and after receiving an affirmative vote of not less than a majority
of the outstanding Shares entitled to vote at any meeting of
Shareholders, the notice for which included a statement of such
proposed action, the Trustees may effect such merger or may sell,
convey and transfer the Trust Property to any such corporation,
association, trust or organization in exchange for cash or shares
or securities thereof, or beneficial interest therein with the
assumption by such transferee of the liabilities of the Trust; and
thereupon the Trustees shall terminate the Trust and deliver such
cash, shares, securities or beneficial interest ratably among the
Shareholders of this Trust in redemption of their Shares.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Declaration of Trust is executed
by the Trustees and delivered in the Commonwealth of Massachusetts
and with reference to the laws thereof, and the rights of all
parties and the validity, construction and effect of every
provision hereof shall be subject to and construed according to the
laws of said Commonwealth and reference shall be specifically made
to the Business Corporation Law of the Commonwealth of
Massachusetts as to the construction of matters not specifically
covered herein or as to which an ambiguity exists.
14.2 Counterparts. This Declaration of Trust may be
simultaneously executed in several arts, each of which so executed
shall be deemed to be an original, and such counterparts, together,
shall constitute but one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
14.3 Reliance by Third Parties. Any certificate executed
by an individual who, according to the records of the Trust, or of
any recording office in which this Declaration may be recorded,
appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of
the execution of any instrument or writing, (c) the form of any
vote passed at a meeting of Trustees or Shareholders, (d) the fact
that the number of Trustees or Shareholders present at any meeting
or ex g and written instrument satisfies the requirements of this
Declaration of Trust, (e) the form of any Bylaws adopted by or the
identity of any officers by the Trustees, or (f) the existence of
any fact or facts which in any manner to the affairs of the Trust,
shall be conclusive evidence as to the matters so certified in
favor of any person dealing with the Trustees or any of them and
the successors of such person.
14.4 Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are
severable and if the Trustees shall determine, with the advice of
counsel, that any one or more of such provisions (the "Conflicting
<PAGE> 36
Provisions") are in conflict with the investment company provisions
of the Internal Revenue Code or with other applicable federal or
state laws and regulations, the Conflicting Provisions shall be
deemed never to have constituted a part of this Declaration of
Trust; provided, however, that such determination by the Trustees
shall not affect or impair any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken
or omitted (including, but not limited to, the election of
Trustees) prior to such determination.
(b) If any provisions of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction
and shall not in any manner affect or render invalid or unenforceable such
provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
14.5 Section Heading. Section headings have been inserted for
convenience only and are not a part of this Declaration of Trust.
ARTICLE XV
DURATION OF TRUST
15.1 Duration. Subject to possible termination in accordance
with the provisions of Article XIII hereof, the Trust created hereby shall
continue until the expiration of twenty (20) years after the death of the
last survivor of the following named persons:
<TABLE>
<CAPTION>
Name Address Birth Date
- ---- ------- ----------
<S> <C> <C>
Matthew James Perkins 7 Raymond Street April 14, 1983
Chatham,
New Jersey 07928
Alan Carson Bradley 118 Courtney February 16, 1977
Street, Newark,
Delaware 19711
Joseph W. Bradley III 118 Courtney September 21, 1974
Street, Newark,
Delaware 19711
Graham T. Reinhart 405 Heights Road June 24, 1983
Ridgewood, New
Jersey 07450
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C>
Cheryl A. Reinhart P.O. Box 167 September 12, 1966
Thornville, Ohio
43076
Catherine M. Reinhart P.O. Box 167 May 6, 1969
Thornville, Ohio
43076
</TABLE>
<PAGE> 38
IN WITNESS WHEREOF, the undersigned members of the Board of the
Trustees have caused this Amended Declaration of Trust to be executed as of the
lst day of September, 1988.
<TABLE>
<CAPTION>
Position
Name With Trust Address
- ---- ---------- -------
<S> <C> <C>
/s/Harvey P. Eisen President 666 Third Avenue
- ------------------------- and Trustee New York, NY 10017
Harvey P. Eisen
/s/Stephen J. Gutman Trustee 49-39 Van Dam Street
- ------------------------- Long Island City, NY 11101
Stephen J. Gutman
/s/Samuel M. Eisenstat Trustee 157 East 61st Street
- ------------------------- New York, NY 10021
Samuel M. Eisenstat
/s/S. James Coppersmith Trustee WCBV-TV
- ------------------------- Five TV Place
S. James Coppersmith Needham, MA 02190
/s/Frank W. Geller Trustee 666 Third Avenue
- ------------------------- New York, NY 10017
Frank W. Geller
(ALL TRUSTEES MUST SIGN)
</TABLE>
<PAGE> 39
INTEGRATED RESOURCES SERIES TRUST
Amendment to Declaration of Trust
dated August 26, 1983
The undersigned, being all of the Trustees of INTEGRATED RESOURCES
SERIES TRUST, a Massachusetts business Trust, hereby amend the Declaration
of Trust as follows:
"The name of the Trust shall be ANCHOR SERIES TRUST."
WITNESS the due execution hereof this 19th day of January, 1990.
<TABLE>
<S> <C>
/s/ S. James Coppersmith /s/ Samuel M. Eisenstat
- ------------------------------ ---------------------------
S. James Coppersmith Samuel M. Eisenstat
/s/ Harvey P. Eisen /s/ Stephen J. Gutman
- --------------------------- ---------------------------
Harvey P. Eisen Stephen J. Gutman
</TABLE>
<PAGE> 1
EXHIBIT 99.B2
BY-LAWS
These By-laws are adopted pursuant to the Declaration of Trust
establishing INTEGRATED RESOURCES SERIES TRUST ("IRST").
ARTICLE I
Shareholders' Meetings and Record Dates
Section 1.1 General. All meetings of the Shareholders shall be
held, pursuant to written notice, within or without the Commonwealth
of Massachusetts on the day and at the time that the
Trustees shall designate. Notice will be by mail not less than
ten (10) nor more than sixty (60) days prior to the meeting date,
and shall be deemed given when deposited in the United States
mail with first class postage prepaid or in a telegraph office
with charges prepaid, directed to the Shareholder's address. A
certificate or affidavit by the Secretary or an Assistant Secretary of
IRST or a transfer agent shall be evidence of the giving
of any notice required by the Declaration.
Section 1.2 Notice of Adjournments. Upon adjournment of any
meeting of Shareholders, it is not necessary to give notice of
the adjourned meeting other than by announcement at the meeting
at which such adjournment is taken. At any adjourned meeting at
which a quorum is present only business which might have been
transacted at the meeting originally called may be transacted.
If after the adjournment, the Trustees fix a new record date for
the adjourned meeting, a notice of the adjourned meeting and the
new record date must be given to each Shareholder of record.
Section 1.3 Chairman. The President of IRST will act as
chairman at all meetings of the Shareholders; in the absence of
the President, the Vice President shall act as chairman; and in
the absence of the President and Vice President, the Trustee or
Trustees present at each meeting may elect a temporary chairman
for the meeting, who may be one of themselves.
Section 1.4 Proxies; Voting. Shareholders may vote at any meeting,
or by consent in writing without a meeting, either in person
or by proxy. Every proxy must be executed in writing by the
Shareholder, or by a duly authorized attorney-in-fact. Each full
share represented at the meeting is entitled to one vote and
fractional shares to fractional votes. A proxy will be revocable
at will, unless otherwise provided in the proxy. The revocation
of a proxy is not effective until notice has been given to the
Secretary of IRST, or any other agent of IRST designated by the
Secretary. No proxy is valid after six (6) months from the date
of its execution. A proxy is not revoked by the death or
incapacity of the maker unless, before the vote is counted or the
<PAGE> 2
authority is exercised, written notice of such death or incapacity
is given to the Secretary of IRST.
Section 1.5 Closing of Transfer Books and Fixing Record Dates.
For the purpose of determining the Shareholders who are entitled
to notice of or to vote or act at any meeting, including any
adjournment, or for any other proper purpose, the Trustees may,
from time to time, close the transfer books or fix a record date
in the manner provided in the Declaration. If the Trustees do
not, prior to any meeting of Shareholders, close the transfer
books or fix a record date, then the record date is the close of
business of the day preceding the date of mailing of notice of
the meeting.
Section 1.6 Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election.
If Inspectors of Election are not appointed, the Chairman of any
meeting may make the appointment at the meeting. The number of
Inspectors shall be either one (1) or three (3). The Inspectors
of Election must determine the number of Shares outstanding, the
Shares represented at the meeting, the existence of a quorum, and
the validity of proxies. The Inspectors receive votes, ballots
or consents; shall hear and determine all challenges and questions
in any way arising in connection with the right to vote;
shall count and tabulate all votes or consents and determine the
results; and do such other acts as may be proper to conduct the
election or vote with impartiality and fairness to all Shareholders.
If there are three Inspectors of Election, the decision,
act or certificate of a majority shall be effective in all respects
as the decision, act or certificate of all. On request of
the Chairman of the meeting, or of any Shareholder or a Shareholder's
proxy, the Inspectors of Election shall make a written
report of any challenge or question or matter determined by them
and execute a certificate of any fact found by them.
ARTICLE II
Trustees
Section 2.1 Regular Meetings. Regular meetings of the Trustees
may be held at such time and place as the Trustees may by resolution
from time to time determine without call or notice. If any
day fixed for a regular meeting shall be a legal holiday in the
Commonwealth of Massachusetts or the place designated for regular
meetings, then the meeting shall be held at the same hour and
place on the next succeeding business day.
Section 2.2 Special Meetings. Special Meetings of the Trustees
may be held upon the call of the President, the Secretary, or any
2
<PAGE> 3
two Trustees, at the time and place designated in the notice of
the meeting.
Section 2.3 Notice of Special Meetings. Notice of any special
meeting must be given to a Trustee either personally or by sending
a copy by mail or by telegram to the Trustee's address at
least forty-eight (48) hours prior to the time named for such
meeting. If the notice is sent by mail or by telegraph, it will
be deemed given when deposited in the mail, or with a telegraph
office. Notice by telephone constitutes personal delivery for
these purposes.
Section 2.4 Waiver of Notice. If any notice is required to be
given to a Trustee, a waiver in writing, whether signed before or
after the meeting, is deemed sufficient as due notice. Attendance
of a Trustee at a meeting constitutes a waiver of notice of
the meeting except if the Trustee attends the meeting for the
express purpose of objecting to the transactions of any business
because the meeting was not lawfully called or convened.
Section 2.5 Adjournment. Adjournment or adjournments of any
meeting may be taken. It is not necessary to give any notice of
the adjourned meeting other than by announcement at the meeting
at which such adjournment is taken. At any adjourned meeting at
which a quorum is present, any business may be transacted which
might have been transacted at the meeting originally called.
Section 2.6 Meeting of Shareholders. Meetings of Shareholders
shall be held at such times and in such places as the Trustees
shall, by resolution, direct.
ARTICLE III
Officers, Agents and Employees
Section 3.1 Officers of the Trust. The officers of the Trust
shall be a President, chosen from among the Trustees, a Secretary
and a Treasurer or persons who shall act as such regardless of
the name or title by which they may be designated, elected or
appointed. One or more Vice-Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and any other officers or
agents as the Trustees shall deem necessary or appropriate to
carry out the business of the Trust may also be elected or appointed.
Any two or more offices may be held by the same person,
except those of President and Secretary and provided that no
officer may execute, acknowledge or verify any instrument in more
than one capacity if the instrument is required to be executed,
acknowledged or verified by two or more officers. In addition to
the powers and duties prescribed by the Declaration
3
<PAGE> 4
and these By-laws, the officers have the authority and will perform duties
prescribed by the Trustees. The officers of IRST will hold office until their
successors are chosen and have qualified. The Trustees may amend the title of
any officer or create new officers.
Section 3.2 Removal of Officers, Agents or Employees. Any officer may be
removed or have authority revoked at any time, with or without cause, by a
majority of the Trustees. Any removal or revocation will be without prejudice
to the rights of the person removed to receive compensation or other benefits
in accordance with the terms of existing contracts. Any agent or employee
likewise may be removed by the President or, subject to the supervision of the
President, by the person having authority with respect to the appointment of
the agent or employee. Any officer may resign at any time by written notice
signed by such officer and delivered or mailed to the President or Secretary.
The resignation will take effect upon receipt of such notice by the President
or Secretary, or at a later date according to the terms of such notice.
Section 3.3 Bonds and Surety. Any officer may be required by the Trustees to
be bonded for the faithful performance of duties.
Section 3.4 The President. Subject to such supervisory powers, if any, given
by the Trustees, the President will be the chief operating officer of IRST and,
subject to the control of the Trustees, shall have general supervision,
direction and control of the business of IRST and of its employees and shall
exercise such general powers of management as are usually vested in the office
of president of a Massachusetts business corporation. Subject to direction of
the Trustees, the President will have power in the name and on behalf of IRST
to execute any and all loan documents, contracts, agreements, deeds, mortgages,
and other instruments in writing, and to employ and discharge employees and
agents of IRST.
Section 3.5 Vice-President; Powers and Duties. The Vice-President, will in the
absence or disability of the President, perform all the duties of the
President, and when so acting have all the powers and be subject to all of the
restrictions upon the President. Subject to the direction of the Trustees and
the President, each Vice-President shall have the power in the name and on
behalf of IRST to execute any and all loan documents, contracts, agreements,
deeds, mortgages and other instruments in writing, and, in addition, shall have
any other duties and powers designated from time to time by the Trustees or the
President and by general usage as pertain to the office.
Section 3.6 Secretary; Powers and Duties. The Secretary will keep the minutes
of all meetings of, and record all votes of, Shareholders, Trustees. The
Secretary will give notice of
4
<PAGE> 5
meetings of the Shareholders and of the Trustees, and perform any
other duties prescribed by the Trustees or the President. The
Secretary will keep in safe custody the seal of the Trust, and
may affix the seal to any instrument executed by IRST and attest
the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of IRST. The Secretary
shall also perform any other duties commonly incident to such
office in a Massachusetts business corporation, and will have
other authorities and duties as the Trustees or the President
will determine from time to time.
Section 3.7 Treasurer; Powers and Duties. Except as otherwise
directed by the Trustees, the Treasurer will have the general
supervision of the monies, funds, securities and notes receivable
and will have and exercise all powers and duties normally incident
to the office. Unless the Trustees otherwise determine, the
Treasurer will be the principal financial and accounting officer
of the Trust and have any other duties and authorities as the
Trustees or the President shall determine from time to time.
Notwithstanding anything contained to the contrary in these
By-laws, the Trustees may authorize the Investment Adviser, the
Custodian or the Transfer Agent to maintain bank accounts and
deposit and disburse funds of the Trust on behalf of the Trust.
ARTICLE IV
Shares
Section 4.1 Evidence of Share Ownership. Certificates representing
the Trust's Shares will not be physically issued.
ARTICLE V
Miscellaneous
Section 5.1 Depositories. The funds of IRST will be deposited in
those Depositories the Trustees designate and will be drawn out
on checks, drafts or other orders signed by the officers the
Trustees authorize.
Section 5.2 Signatures. All contracts and other instruments will
be executed on behalf of IRST by the officers provided in the
Declaration or these By-laws or as the Trustees designate.
Section 5.3 Seal. The seal of the Trust will have inscribed the
words "Integrated Resources Series Trust, a Massachusetts
Voluntary Association, Common Seal, 1983." The seal may be used
by causing it or a facsimile to be impressed or affixed or in any
5
<PAGE> 6
manner reproduced and attested as if it had been impressed and
attested manually.
ARTICLE VI
Amendment of By-laws
Section 6.1 Amendment and Repeal of By-laws. In accordance with
the Declaration, the Trustees have the power to alter, amend or
repeal the By-laws or adopt new By-laws at any time. Action by
the Trustees with respect to the By-laws must be taken by an
affirmative vote of a majority of the Trustees. The Trustees may
in no event adopt By-laws which are in conflict with the Declaration,
and any apparent inconsistency shall be construed in favor
of the related provisions in the Declaration.
* * * * *
The Declaration of Trust establishing Integrated Resources Series
Trust, dated August 24, 1983, a copy of which, together with all
amendments thereto (the "Declaration"), is on file in the office
of the Secretary of the Commonwealth of Massachusetts, provides
that the name "Integrated Resources Series Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not
as individuals or personally. No Trustee shareholder, officer,
employee or agent of Integrated Resources Series Trust shall be
held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim
or otherwise in connection with the affairs of Integrated
Resources Series Trust but the Trust property only shall be liable.
6
<PAGE> 7
ANCHOR SERIES TRUST
AMENDMENT NO. 1 TO THE BY-LAWS
The By-Laws of Anchor Series Trust, formerly Integrated
Resources Series Trust, (the "Trust") shall be amended in the
following respects:
1. The name of the Corporation shall be Anchor Series Trust.
2. The following supplements the provisions of Article III,
Section 3.1 of the Corporation's By-Laws:
The officers of the Trust shall include, among those currently
listed in Section 3.1, a Chairman.
3. The following is a new section 3.4 of Article III of the
Trust's By-Laws:
3.4 The Chairman. The Chairman, if any, or in his or her
absence the President, shall preside at all meetings of the Board
of Trustees, shall be a signatory on all Annual and Semi-Annual
Reports as may be sent to Shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe. If
the elected Chairman is deemed to be an independent trustee, as
defined in the Investment Company Act of 1940, as amended, then
such Chairman shall not be an officer of the Trust under the
provisions of this Article III. The duties of such Chairman
shall be limited to presiding over all meetings of the Board of
Trustees, and may include such other duties that may be
prescribed by the Trustees which shall not otherwise be in
conflict with his or her role as an independent trustee.
4. He following Sections of Article II of the Trust's By-Laws
are hereby renumbered as follows without further amendment:
3.5 The President
3.6 Vice President; Powers and Duties
3.7 Secretary; Powers and Duties
3.8 Treasurer; Powers and Duties
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day
of February, 1994.
By: /s/Robert M. Zakem
-----------------------
Robert M. Zakem, Secretary
Anchor Series Trust
<PAGE> 8
ANCHOR SERIES TRUST
AMENDMENT NO. 2 TO THE BY-LAWS
The By-Laws of Anchor Series Trust shall be amended in the
following respect:
1. The words "chosen from among the Trustees" shall be deleted from
the first sentence under Article III, Section 3.1.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day
of November, 1994.
By:
-----------------------------
Robert M. Zakem, Secretary
Anchor Series Trust
<PAGE> 1
EXHIBIT 99.B5a
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT is dated as of February 13,
1990, and restated as of November 17, 1994, between ANCHOR SERIES TRUST, a
Massachusetts business trust (the "Trust") and SUNAMERICA ASSET MANAGEMENT
CORP., a Delaware corporation (the "Adviser" or "SAAM").
In consideration of the mutual agreements herein made, the
parties hereto agree as follows:
1. DUTIES OF THE ADVISER. The Adviser shall manage the affairs of
the Trust and the separate series of the Trust set forth in Schedule A
attached hereto (the "Portfolios"), including, but not limited to, continuously
providing the Trust with investment management, including investment research,
advice and supervision, determining which securities shall be purchased or sold
by each Portfolio of the Trust, making purchases and sales of securities on
behalf of each Portfolio and determining how voting and other rights with
respect to securities owned by the Portfolios shall be exercised, subject in
each case to the control of the Trustees of the Trust (the "Trustees") and in
accordance with the objectives, policies and principles set forth in the
Trust's Registration Statement and its current Prospectus and Statement of
Additional Information, as amended from time to time, the requirements of the
Investment Company Act of 1940, as amended (the "Act") and other applicable
law. In performing such duties, the Adviser (i) shall provide such office
space, such bookkeeping, accounting, clerical, secretarial and administrative
services (exclusive of, and in addition to, any such service provided by any
others retained by the Trust or any of its Portfolios) and such executive and
other personnel as shall be necessary for the operations of each Portfolio,
(ii) shall be responsible for the financial and accounting records required to
be maintained by each Portfolio (including those maintained by the Fund's
custodian) and (iii) shall oversee the performance of services provided to each
Portfolio by others, including the custodian, transfer and shareholder
servicing agent. The Trust understands that the Adviser also acts as the
manager of other investment companies.
Subject to Section 36 of the Act, the Adviser shall not be
liable to the Portfolios or the Trust for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or
omission in the management of the Portfolios and the performance of its
duties under this Agreement except for willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under this Agreement.
2. EXPENSES. The Adviser shall pay all of its expenses arising from
the performance of its obligations under Section 1 and shall pay any salaries,
fees and expenses of the Trustees and Officers who are employees of the
Adviser. The Adviser shall not be required to pay any other expenses of the
Trust, including, but not limited to, direct charges relating to the purchase
and sale of portfolio securities, interest charges, fees and expenses of
independent attorneys and auditors, taxes and governmental fees, 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,
<PAGE> 2
expenses of printing and distributing reports, notices and proxy materials to
shareholders, expenses of data processing and related services, shareholder
record-keeping and shareholder account service, expenses of printing and filing
reports and other documents filed with governmental agencies, expenses of
printing and distributing prospectuses, expenses of annual and special
shareholders' meetings, fees and disbursements of transfer agents and
custodians, expenses of disbursing dividends and distributions, fees and
expenses of Trustees who are not employees of the Adviser or its affiliates,
membership dues in the Investment Company Institute, insurance premiums and
extraordinary expenses such as litigation expenses.
3. COMPENSATION. (a) As compensation for the services performed
and the facilities and personnel provided by the Adviser pursuant to Section 1,
the Trust will pay to the Adviser, promptly after the end of each month, the
sum of the amounts set forth in Schedule A attached hereto, calculated in
accordance with the average daily net assets of the indicated Portfolio.
However, the amount of compensation payable to the Adviser may be restricted by
applicable state law limitations.
(b) If the Adviser shall serve hereunder for less than the whole of
any month, the fee hereunder shall be prorated.
4. PURCHASE AND SALE OF SECURITIES. The Adviser shall purchase
securities from or through and sell securities to or through such persons,
brokers or dealers as the Adviser shall deem appropriate in order to carry out
the policy with respect to portfolio transactions as set forth in the Trust's
Registration Statement and its current Prospectus or Statement of Additional
Information, as amended from time to time, or as the Trustees may direct from
time to time. The placing of purchase and sale orders may be carried out by
the Adviser or any wholly-owned subsidiary of the Adviser.
Nothing herein shall prohibit the Trustees from approving the payment
by the Trust of additional compensation to others for consulting services,
supplemental research and security and economic analysis.
5. TERM OF AGREEMENT. This agreement shall continue in full force
and effect until the earlier of (a) February 13, 1992; or (b) the first
meeting of the shareholders of such Portfolio after the date hereof. If
approved at such meeting by the affirmative vote of a majority of the
outstanding voting securities (as defined by the Act) of the Portfolio with
respect to such Portfolio, voting separately from any other Portfolio of the
Trust, this Agreement shall continue in full force and effect with respect to
such Portfolio from year to year thereafter if such continuance is approved in
the manner required by the Act and the Adviser shall not have notified such
Portfolio in writing at least 60 days prior to the anniversary date of the
previous continuance that it does not desire such continuance. This Agreement
may be terminated at any time, without payment of penalty by the Portfolios on
60 days written notice to the Adviser, by vote of the Trustees, or by vote of a
majority of the outstanding voting securities (as defined by the Act) of such
Portfolio, voting separately from any other Portfolio of the Trust. This
Agreement shall automatically terminate in the event of its assignment (as
defined by the Act).
-2-
<PAGE> 3
6. MISCELLANEOUS. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this Agreement shall not be construed
to require, or to impose any duty upon either of the parties, to do anything in
violation of any applicable laws or regulations.
The Declaration of Trust establishing the Trust of which each
Portfolio is a separate, designated series, a copy of which is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name of the Trust refers to the Trustees collectively as Trustees, not as
individuals or personally; and that no Trustee, shareholder, officer, employee,
or agent of the Trust shall be held to any personal liability, nor shall resort
be had to their private property for the satisfaction of any obligation or
claim or otherwise in connection with the affairs of the Trust or any
Portfolio; but that the Trust Estate shall be liable.
IN WITNESS WHEREOF, the Trust and the Adviser have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
ANCHOR SERIES TRUST
By: /s/ Peter A. Harbeck
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Robert M. Zakem
-3-
<PAGE> 4
SCHEDULE A
<TABLE>
<CAPTION>
FEE RATE
PORTFOLIO (as a % of average daily net asset value)
- --------- -----------------------------------------
<S> <C>
Capital Appreciation Portfolio .750% of net assets
Convertible Securities Portfolio .700% of net assets
Fixed Income Portfolio .625% of net assets
Foreign Securities Portfolio .900% of net assets
Government & Quality Bond Portfolio .625% of net assets
Growth Portfolio .750% of net assets
High Yield Portfolio .700% to $250MM
.600% over $250MM
Money Market Portfolio .500% of net assets
Multi-Asset Portfolio 1.000% of net assets
Natural Resources Portfolio .750% of net asset
Strategic Multi-Asset Portfolio 1.000% of net assets
Target '98 Portfolio .625% of net assets
</TABLE>
-4-
<PAGE> 1
EXHIBIT 99.B5b
SUB-ADVISORY AGREEMENT
This Agreement dated February 13, 1990, as restated
November 17, 1994, by and between SunAmerica Asset Management
Corp., a Delaware corporation (the "Adviser"), 733 Third Avenue,
New York, New York 10017, and Wellington Management Company, a
Massachusetts partnership ("Wellington"), 75 State Street, Boston,
Massachusetts 02109.
WITNESSETH:
WHEREAS, the parties hereto have entered into separate
subadvisory agreements, each dated February 13, 1990, with respect
to the each separate series of Anchor Series Trust (the "Trust");
and
WHEREAS, each such subadvisory agreement is identical
with respect to their terms and conditions; and
WHEREAS, the parties have determined it desirable to
consolidate all such subadvisory agreements into one document for
administrative convenience.
NOW THEREFORE, it is hereby agreed by and between the
Adviser and Wellington as follows:
1. DUTIES OF WELLINGTON. Adviser hereby engages the services of
Wellington in furtherance of its Investment Advisory and Management
Agreement with Anchor Series Trust (the "Trust") dated February
13, 1990, on behalf of each separate series of the Trust set forth
in Schedule A attached hereto (the "Portfolios"). Pursuant to this
Sub-Advisory Agreement and subject to the oversight and review of
Adviser, Wellington will manage the investment and reinvestment of
the assets of each Portfolio. Wellington will determine in its
discretion, subject to the oversight and review of Adviser, the
securities to be purchased or sold, will provide the Adviser with
records concerning its activities which the Adviser or the Trust is
required to maintain, and will render regular reports to Adviser
and to officers and Trustees of the Trust concerning its discharge
of the foregoing responsibilities. Wellington shall discharge the
foregoing responsibilities subject to the control of the officers
and the Trustees of the Trust and in compliance with such policies
as the Trustees of the Trust may from time to time establish, and
in compliance with the objectives, policies, and limitations of
each Portfolio set forth in the Trust's prospectus, and applicable
laws and regulations. Wellington accepts such employment and
agrees, at its own expense, to render the services and to provide
the office space, furnishings, equipment and personnel required by
it to perform the services on the terms and for the compensation
provided in this Agreement.
2. PORTFOLIO TRANSACTIONS. Wellington is authorized to select
the brokers or dealers that will execute the purchases and sales of
portfolio securities and is directed to use its best efforts to
obtain the best available price and most favorable execution,
except as prescribed in this Agreement. Subject to policies
established by the Trustees of the Trust, Wellington may also be
authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates
available, if Wellington determines in good faith that such amount
of commission is reasonable in
<PAGE> 2
relation to the value of the brokerage or research services
provided by such broker or dealer, viewed in terms of either
that particular transaction or Wellington's overall responsibilities
with respect to each Portfolio of the Trust and other clients of
Wellington. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this
Agreement or otherwise. Wellington will promptly communicate to
Adviser and to the officers and the Trustees of the Trust such
information relating to portfolio transactions as they may
reasonably request.
3. COMPENSATION OF WELLINGTON. As its compensation hereunder,
the Adviser shall pay to Wellington on the last day of each
calendar month, or as promptly as possible thereafter, a fee
calculated in accordance with the average daily net assets of the
indicated Portfolio as set forth in Schedule A attached hereto.
4. OTHER SERVICES. At the request of the Trust and Adviser,
Wellington in its discretion may make available to the Trust,
office facilities, equipment, personnel and other services. Such
office facilities, equipment, personnel and services shall be
provided for or rendered by Wellington and billed to the Trust or
Adviser at Wellington's cost.
5. REPORTS. The Trust, Adviser, and Wellington agree to furnish
to each other, if applicable, current prospectuses, proxy
statements, reports to shareholders, certified copies of their
financial statements, and such other information with regard to
their affairs as each may reasonably request.
6. STATUS OF WELLINGTON. The services of Wellington to Adviser
and the Trust are not to be deemed exclusive, and Wellington shall
be free to render similar services to others so long as its
services to the Trust are not impaired thereby. Wellington shall
be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to
act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
7. CERTAIN RECORDS. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
promulgated under the Investment Company Act of 1940 which are
prepared or maintained by Wellington on behalf of the Trust are the
property of the Trust and will be surrendered promptly to the Trust
or Adviser on request.
8. REFERENCE TO WELLINGTON. Neither the Trust nor Adviser or any
affiliate or agent thereof shall make reference to or use the name
of Wellington or any of its affiliates in any advertising or
promotional materials without the prior approval of Wellington,
which approval shall not be unreasonably withheld.
9. LIABILITY OF WELLINGTON. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties ("disabling conduct") hereunder on the part
of Wellington (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity
affiliated with Wellington) Wellington shall not be subject to
liability to the Trust or to any shareholder of the Trust for any
act or omission in the course of, or connected with, rendering
services hereunder, including without limitation, any error of
judgment or mistake of law or for any
-2-
<PAGE> 3
loss suffered by any of them in connection with the matters to
which this Agreement relates, except to the extent specified
in Section 36(b) of the Investment Company Act of 1940 concerning
loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services. Except for such
disabling conduct, the Trust shall indemnify Wellington (and its
officers, directors, agents, employees, controlling persons,
shareholders and any other person or entity affiliated with
Wellington) from any liability arising from Wellington's conduct
under this Agreement.
Indemnification to Wellington or any of its personnel or
affiliates shall be made when (i) a final decision on the merits
rendered, by a court or other body before whom the proceeding was
brought, that the person to be indemnified was not liable by reason
of disabling conduct or, (ii) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the person to be indemnified was not liable by reason of disabling
conduct, by (a) the vote of a majority of a quorum of Trustees who
are neither "interested persons" of the Trust as defined in section
2(a)(19) of the Investment Company Act of 1940 nor parties to the
proceeding ("disinterested, non-party Trustees"), or (b) an
independent legal counsel in a written opinion. The Trust may, by
vote of a majority of the disinterested, non-party Trustees,
advance attorneys' fees or other expenses incurred by officers,
Trustees, investment advisers, sub-advisers or principal
underwriters, in defending a proceeding upon the undertaking by or
on behalf of the person to be indemnified to repay the advance
unless it is ultimately determined that he is entitled to
indemnification. Such advance shall be subject to at least one of
the following: (1) the person to be indemnified shall provide a
security for his undertaking, (2) the Trust shall be insured
against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of the disinterested, non-party Trustees, 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 person to be indemnified ultimately will be
found entitled to indemnification.
10. PERMISSIBLE INTERESTS. Trustees and agents of the Trust are
or may be interested in Wellington (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise;
directors, partners, officers, agents, and shareholders of
Wellington are or may be interested in the Trust as trustees, or
otherwise; and Wellington (or any successor) is or may be
interested in the Trust in some manner.
11. DURATION AND TERMINATION. This Agreement, unless sooner
terminated as provided herein, shall continue with respect to each
Portfolio until February 13, 1992, and thereafter, for periods of
one year so long as such continuance thereafter is specifically
approved at least annually (a) by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of each Portfolio voting separately from any
other Portfolio of the Trust, provided, however, that if the
shareholders fail to approve the Agreement as provided herein,
Wellington may continue to serve hereunder in the manner and to the
extent permitted by the Investment Company Act of 1940 and rules
thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall be
construed in a manner consistent with the
-3-
<PAGE> 4
Investment Company Act of 1940 and the rules and regulations
thereunder. This Agreement may be terminated at any time, without
the payment of any penalty by vote of a majority of the Trustees
of the Trust or by vote of a majority of the outstanding voting
securities of each Portfolio with respect to that Portfolio or by
the Adviser on not less than 30 days nor more than 60 days written
notice to Wellington or by Wellington at any time without the
payment of any penalty, on 90 days written notice to Adviser and
the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment. Any notice under this
Agreement shall be given in writing, addressed and delivered, or
mailed postage prepaid, to the other party at any office of such
party.
As used in this Section 11, the terms, "assignment",
"interested persons", and a "vote of a majority of the outstanding
voting securities" shall have the respective meanings set forth in
the Investment Company Act of 1940 and the rules and regulations
thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
This Agreement will also terminate in the event that the
Investment Advisory and Management Agreement by and between the
Trust on behalf of each Portfolio and the Adviser dated February
13, 1990, is terminated.
12. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
A copy of the Declaration of Trust of the Trust is on
file with the Secretary of the Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf
of the Trustees as Trustees, and is not binding upon any of the
Trustees, officers, or shareholders of the Trust individually but
binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the parties have executed this
Agreement on this 17th day of November, 1994.
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Robert M. Zakem
WELLINGTON MANAGEMENT COMPANY
By: /s/ Duncan M. McFarland
-4-
<PAGE> 5
SCHEDULE A
<TABLE>
<CAPTION>
FEE RATE
PORTFOLIO (as a % of average daily net asset value)
- --------- -----------------------------------------
<S> <C>
Capital Appreciation Portfolio .375% first $ 50MM
.275% next $100MM
.200% next $350MM
.150% thereafter
Convertible Securities Portfolio .325% first $ 50MM
.225% next $100MM
.200% next $350MM
.150% thereafter
Fixed Income Portfolio .225% first $ 50MM
.125% next $ 50MM
.100% thereafter
Foreign Securities Portfolio .400% first $ 50MM
.275% next $100MM
.200% next $350MM
.150% thereafter
Government & Quality Bond Portfolio .225% first $ 50MM
.125% next $ 50MM
.100% thereafter
Growth Portfolio .325% first $ 50MM
.225% next $100MM
.200% next $350MM
.150% thereafter
High Yield Portfolio .300% first $ 50MM
.225% next $100MM
.175% next $350MM
.150% thereafter
Money Market Portfolio .075% first $500MM
.020% thereafter
Multi-Asset Portfolio .250% first $ 50MM
.175% next $100MM
.150% thereafter
Natural Resources Portfolio .350% first $ 50MM
.250% next $100MM
.200% next $350MM
.150% thereafter
Strategic Multi-Asset Portfolio .300% first $ 50MM
.200% next $100MM
.175% next $350MM
.150% thereafter
Target '98 Portfolio .225% first $ 50MM
.150% next $ 50MM
.100% next $400MM
.050% thereafter
</TABLE>
-5-
<PAGE> 1
EXHIBIT 99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 24 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 13, 1995, relating to the financial statements and financial
highlights of Anchor Series Trust, which appears in such Statement of
Additional Information. We also consent to the reference to us under the
heading "Independent Accountants and Legal Counsel" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" and "Report and Independent Accountants" in the Prospectus which
constitutes part of this Registration Statement.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
December 27, 1995
