<PAGE> 1
As filed with the Securities and Exchange Commission on March 30, 1999
Securities Act File No. 2-86188
Investment Company File Act No. 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. 30: [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 30 [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, New York 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 for Agent for Service)
Copy 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)
[ ] on (date) pursuant to paragraph (b) of Rule 485
[X] immediately upon filing pursuant to paragraph (b) of
Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of
Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of
Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE> 2
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PROSPECTUS
MARCH 30, 1999
----------------------------------------------
ANCHOR SERIES TRUST
-- Growth and Income Portfolio
-- Growth Portfolio
-- Capital Appreciation Portfolio
-- Foreign Securities Portfolio
-- Natural Resources Portfolio
-- Multi-Asset Portfolio
-- Strategic Multi-Asset Portfolio
-- Money Market Portfolio
-- Government and Quality
Bond Portfolio
-- Fixed Income Portfolio
-- High Yield Portfolio
----------------------------------------------
[ANCHOR NATIONAL LOGO]
----------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TRUST HIGHLIGHTS............................................ 3
Q&A....................................................... 3
ACCOUNT INFORMATION......................................... 19
Transaction Policies...................................... 19
Dividend Policies and Taxes............................... 20
OTHER INFORMATION........................................... 20
Substitution Application -- Fixed Income and Foreign
Securities Portfolios.................................. 20
Year 2000................................................. 20
MORE INFORMATION ABOUT THE PORTFOLIOS....................... 21
Investment Selection...................................... 21
Investment Strategies..................................... 21
GLOSSARY.................................................... 28
Investment Terminology.................................... 28
Risk Terminology.......................................... 30
MANAGEMENT.................................................. 32
Investment Adviser........................................ 32
Subadviser................................................ 32
Portfolio Management...................................... 33
Custodian, Transfer and Dividend Paying Agent............. 35
FINANCIAL HIGHLIGHTS........................................ 36
FOR MORE INFORMATION........................................ 38
</TABLE>
2
<PAGE> 4
- --------------------------------------------------------------------------------
TRUST HIGHLIGHTS
- --------------------------------------------------------------------------------
Q&A
"CORE EQUITY SECURITIES" are stocks, primarily of well established
companies, diversified by industry and company type that are selected
based on their predictable or anticipated earnings growth and best
relative value.
A "GROWTH" PHILOSOPHY -- that of investing in securities believed to
offer the potential for capital appreciation -- focuses on securities
of companies that are considered to have a historical record of
above-average growth rate, significant growth potential, above-average
earnings growth or value, the ability to sustain earnings growth, or
that offer proven or unusual products or services, or operate in
industries experiencing increasing demand.
A "VALUE" PHILOSOPHY -- that of investing in securities that are
believed to be undervalued in the market -- often reflects a
contrarian approach in that the potential for superior relative
performance is believed to be highest when stocks of fundamentally
solid companies are out of favor. The selection criteria is usually
calculated to identify stocks of companies with solid financial
strength and generous dividend yields that have low price-earnings
ratios and have generally been overlooked by the market; or companies
undervalued within an industry or market capitalization category.
The following questions and answers are designed to give you an overview of
Anchor Series Trust (the "Trust") and to provide you with information about the
Trust's eleven separate investment series (Portfolios) and their investment
goals and principal strategies. More complete investment information is provided
in the chart, under "More Information About the Portfolios," which is on page
21, and the glossary that follows on page 28.
Q: WHAT ARE THE PORTFOLIOS' INVESTMENT GOALS AND STRATEGIES?
A: Each Portfolio operates as a separate mutual fund and has its own investment
goal and a strategy for pursuing it. There can be no assurance that any
Portfolio's investment goal will be met or that the net return on an
investment in a Portfolio will exceed what could have been obtained through
other investment or savings vehicles. The investment goal may not be changed
without shareholder vote.
<TABLE>
<CAPTION>
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EQUITY PORTFOLIOS
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PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH AND INCOME high current income and invests primarily (at least
PORTFOLIO long-term capital 65%) in core equity securities
appreciation that provide the potential for
growth and offer income, such
as dividend-paying stocks
-----------------------------------------------------------------------------------------
GROWTH PORTFOLIO capital appreciation invests primarily in core
equity securities that are
widely diversified by industry
and company
-----------------------------------------------------------------------------------------
CAPITAL APPRECIATION long-term capital invests primarily in growth
PORTFOLIO appreciation equity securities across a
wide range of industries and
companies, using a
wide-ranging and flexible
stock picking approach; may be
concentrated and will
generally have less
investments in large company
securities than the Growth
Portfolio
-----------------------------------------------------------------------------------------
FOREIGN SECURITIES long-term capital invests in core equity
PORTFOLIO appreciation securities issued by foreign
companies; opportunistically
invests in emerging markets
and smaller companies
-----------------------------------------------------------------------------------------
NATURAL RESOURCES total return in excess using a value approach,
PORTFOLIO of the U.S. rate of invests primarily in equity
inflation as represented securities of U.S. or foreign
by the Consumer Price companies that are expected to
Index provide favorable returns in
periods of rising inflation;
at least 65% related to
natural resources, such as
energy, metals, mining and
forest products
-----------------------------------------------------------------------------------------
</TABLE>
3
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CAPITAL APPRECIATION/GROWTH is an increase in the market value of
securities held.
ASSET ALLOCATION is a varying combination, depending on market
conditions and risk level, of stocks, bonds, money market instruments
and other assets.
TOTAL RETURN is a measure of performance which combines all elements
of return including income and capital appreciation; it represents the
change in value of an investment over a given period expressed as a
percentage of the initial investment.
FIXED INCOME PORTFOLIOS typically seek to provide high current income
consistent with the preservation of capital by investing in fixed
income securities.
INCOME is interest payments from bonds or dividends from stocks.
YIELD is the annual dollar income received on an investment expressed
as a percentage of the current or average price.
MARKET CAPITALIZATION represents the total market value of the
outstanding securities of a corporation.
"HIGH-QUALITY" INSTRUMENTS have a very strong capacity to pay interest
and repay principal; they reflect the issuers' high creditworthiness
and low risk of default.
<TABLE>
<CAPTION>
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ALLOCATION PORTFOLIOS
-----------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
MULTI-ASSET PORTFOLIO long-term total actively allocates the
investment return Portfolio's assets among
consistent with moderate equity securities, investment
investment risk grade fixed income securities
and cash with less risk than
the Strategic Multi-Asset
Portfolio
-----------------------------------------------------------------------------------------
STRATEGIC MULTI-ASSET high long-term total actively allocates the
PORTFOLIO investment return Portfolio's assets among
equity securities of U.S. and
foreign companies, medium and
small company equity
securities, global fixed
income securities (including
high-yield, high-risk bonds)
and cash with more risk than
the Multi-Asset Portfolio
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</TABLE>
<TABLE>
<CAPTION>
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FIXED INCOME PORTFOLIOS
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PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET PORTFOLIO current income invests in a diversified
consistent with portfolio of money market
stability of principal instruments maturing in 397
days or less and maintains a
dollar-weighted average
portfolio maturity of not more
than 90 days
-----------------------------------------------------------------------------------------
GOVERNMENT AND QUALITY relatively high current invests in obligations issued,
BOND PORTFOLIO income, liquidity and guaranteed or insured by the
security of principal U.S. government, its agencies
or instrumentalities and in
high quality corporate fixed
income securities
-----------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO high level of current invests primarily in
income consistent with investment grade bonds and
preservation of capital other fixed income securities
-----------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO high current income and, invests primarily (at least
secondarily, capital 65%) in high-yielding,
appreciation high-risk, income producing
bonds ("junk bonds") and other
fixed income securities
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</TABLE>
4
<PAGE> 6
Q: WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS?
A: Risks of Investing in Equity Securities
The GROWTH AND INCOME, GROWTH, CAPITAL APPRECIATION, FOREIGN SECURITIES AND
NATURAL RESOURCES PORTFOLIOS invest primarily in equities. In addition, the
MULTI-ASSET and STRATEGIC
MULTI-ASSET PORTFOLIOS invest significantly in equities. As with any equity
fund, the value of your investment in any of these Portfolios may fluctuate
in response to stock market movements. In addition, individual stocks
selected for any of these Portfolios may underperform the market generally.
To the extent a Portfolio is also invested in the bond market, movements in
the bond market in addition to the stock market may affect its performance.
Risks of Investing in Bonds
The GOVERNMENT AND QUALITY BOND, FIXED INCOME and HIGH YIELD PORTFOLIOS
invest primarily in bonds. In addition, the MULTI-ASSET and STRATEGIC
MULTI-ASSET PORTFOLIOS invest significantly in bonds. As a result, as with
any bond fund, the value of your investment in these Portfolios may go up or
down in response to changes in interest rates or defaults (or even the
potential for future default) by bond issuers. To an extent a Portfolio is
invested in the bond market, movements in the bond market generally may
affect its performance.
Risks of Investing in Junk Bonds
The HIGH YIELD PORTFOLIO invests primarily in high yield, high risk bonds
commonly known as "junk bonds," which are considered speculative. The GROWTH
AND INCOME, STRATEGIC MULTI-ASSET and FIXED INCOME PORTFOLIOS may also
invest in junk bonds. While the Subadviser tries to diversify each Portfolio
and to engage in a credit analysis of each junk bond issuer in which it
invests, junk bonds carry a substantial risk of default or of changes in the
issuer's creditworthiness, or they may already be in default. A junk bond's
market price may fluctuate more than higher-quality securities and may
decline significantly. In addition, it may be more difficult for the
Portfolios to dispose of junk bonds or to determine their value. Junk bonds
may contain redemption or call provisions that, if exercised during a period
of declining interest rates, may force a Portfolio to replace the security
with a lower yielding security. If this occurs, it will result in a
decreased return for you.
Risks of Investing in Money Market Securities
While an investment in the MONEY MARKET PORTFOLIO should present the least
market risk of any of the Portfolios, since it invests only in high-quality
short-term debt obligations (also known as "money market securities"), you
should be aware that an investment in the MONEY MARKET PORTFOLIO is subject
to the risk that the value of its investments may be subject to changes in
interest rates. You should also be aware that the return on an investment in
the MONEY MARKET PORTFOLIO should not be the same as a return on an
investment in a money market fund available directly to the public, even
where gross yields are equivalent, due to fees at the contract level.
Furthermore, although the Portfolio seeks to maintain a stable 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. As a result, it
is possible to lose money by investing in the Portfolio.
Risks of Investing in Foreign Securities
All of the Portfolios except the MONEY MARKET PORTFOLIO may, and the FOREIGN
SECURITIES, STRATEGIC MULTI-ASSET, AND NATURAL RESOURCES PORTFOLIOS will,
invest to varying degrees in foreign securities. These securities may be
denominated in currencies other than U.S. dollars. Foreign investing
presents special risks, particularly in certain developing countries. While
investing internationally may reduce your risk by increasing the
diversification of your investment, the value of your investment may be
affected by fluctuating currency values, changing local and regional
economic, political and social conditions, and greater market volatility. In
addition, foreign securities may not be as liquid as domestic securities.
5
<PAGE> 7
Risks of Investing in Small Company Stocks
Stocks of smaller companies may be more volatile than and not as liquid as
those of larger companies. This will particularly affect the GROWTH AND
INCOME, GROWTH, and CAPITAL APPRECIATION PORTFOLIOS.
Risks of Investing in Natural Resources
The NATURAL RESOURCES PORTFOLIO will be subject to certain risks specific to
investing in the natural resources industry. Investments in securities
related to precious metals and minerals are considered speculative. Prices
of 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.
In addition, the market price of securities that are tied into the market
price of a natural resource will fluctuate on the basis of the natural
resource. However, there may not be a perfect correlation between the
movements of the asset-based security and the underlying natural resource
asset. Further, these securities typically bear interest or pay dividends at
below market rates, and in certain cases at nominal rates. The Portfolio's
investments in natural resources securities exposes it to greater risk than
a portfolio less concentrated in a group of related industries.
Additional Principal Risks
Shares of Portfolios are not bank deposits and are not guaranteed or insured
by any bank, government entity or the Federal Deposit Insurance Corporation.
As with any mutual fund, there is no guarantee that a Portfolio will be able
to achieve its investment goals. If the value of the assets of a Portfolio
goes down, you could lose money.
6
<PAGE> 8
Q: HOW HAVE THE PORTFOLIOS PERFORMED HISTORICALLY?
A: The following Risk/Return Bar Charts and Tables illustrate the risks of
investing in the Portfolios by showing changes in the Portfolios'
performance from calendar year to calendar year and comparing the
Portfolios' average annual returns to those of an appropriate market index.
Fee and expenses incurred at the contract level are not reflected in the bar
charts or tables. If these amounts were reflected, returns would be less
than those shown. Of course, past performance is not necessarily an
indication of how a Portfolio will perform in the future.
- --------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO.
----------------------------
<S> <C>
1989 14.71%
1990 -3.84%
1991 26.80%
1992 20.10%
1993 22.02%
1994 -9.67%
1995 16.59%
1996 20.15%
1997 28.76%
1998 30.16%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 20.28% (quarter ended 12/31/98) and the lowest return for a quarter
was -9.77% (quarter ended 9/30/90).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Growth and Income Portfolio 30.16% 16.23% 15.83% 13.30%
- -----------------------------------------------------------------------------------------------------
S&P 500(R)(2) 28.60% 24.10% 19.20% 16.20%
- -----------------------------------------------------------------------------------------------------
Lipper VA-UF Growth & Income Category(3) 16.40% 18.60% 15.80% 13.70%
- -----------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is March 23, 1987. The since inception
returns for the comparative indices are as of the inception date month end.
2 The S&P 500(R) Composite Stock Price Index (S&P 500(R)) is an unmanaged,
weighted index of 500 large company stocks that is widely recognized as
representative of the performance of the U.S. stock market.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) Growth and Income
Category includes funds that combine a growth of earnings orientation and an
income requirement for level and/or rising dividends.
7
<PAGE> 9
- --------------------------------------------------------------------------------
GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
----------------
<S> <C>
1989 30.09%
1990 -1.57%
1991 40.82%
1992 5.43%
1993 7.75%
1994 -4.72%
1995 26.32%
1996 25.05%
1997 30.41%
1998 28.96%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 23.93% (quarter ended 12/31/98) and the lowest return for a quarter
was -17.17% (quarter ended 9/30/90).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Growth Portfolio 28.96% 20.41% 17.89% 17.44%
- --------------------------------------------------------------------------------------------------------
S&P 500(R)(2) 28.60% 24.10% 19.20% 18.60%
- --------------------------------------------------------------------------------------------------------
Lipper VA-UF Growth Category(3) 24.90% 20.30% 17.80% 17.40%
- --------------------------------------------------------------------------------------------------------
Custom Index(4) 26.20% N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is September 5, 1984. Except for the Custom
Index, the since inception returns for the comparative indices are as of the
inception date month end.
2 The S&P 500(R) Composite Stock Price Index (S&P 500(R)) is an unmanaged,
weighted index of 500 large company stocks that is widely recognized as
representative of the performance of the U.S. stock market.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) Growth Category includes
funds that normally invest in companies whose long term earnings are expected
to grow significantly faster than the earnings of the stocks represented in
the major unmanaged stock indices.
4 Custom Index consists of 50% Russell 3000 Index and 50% of an index compiled
with the 50 largest Morningstar Growth Mutual Funds. The Russell 3000 Index
represents the top 3,000 stocks traded on the New York Stock Exchange,
American Stock Exchange and National Association of Securities Dealers
Automated Quotations, by market capitalizations.
8
<PAGE> 10
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
------------------------------
<S> <C>
1989 25.02%
1990 -16.18%
1991 56.14%
1992 25.94%
1993 21.07%
1994 -3.8%
1995 34.57%
1996 25.14%
1997 25.43%
1998 22.20%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 26.12% (quarter ended 12/31/98) and the lowest return for a quarter
was -26.82% (quarter ended 9/30/90).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio 22.20% 19.95% 20.01% 16.87%
- ------------------------------------------------------------------------------------------------------------
Russell 2000 Index(2) -2.60% 11.90% 12.90% 10.10%
- ------------------------------------------------------------------------------------------------------------
Lipper VA-UF Capital Appreciation Category(3) 22.20% 17.00% 17.10% 13.50%
- ------------------------------------------------------------------------------------------------------------
Custom Index(4) 12.50% 17.00% 11.30% N/A
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is March 23, 1987. Except for the Custom
Index, the since inception returns for the comparative indices are as of the
inception date month end.
2 Russell 2000 Index represents the top 2,000 stocks traded on the New York
Stock Exchange, American Stock Exchange and National Association of
Securities Dealers Automated Quotations, by market capitalizations.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) Capital Appreciation
Category includes funds that aim at maximum capital appreciation.
4 Custom Index consists of 45% S&P 500(R), 45% Russell 2000 Index (as described
above in footnotes 4 and 2, respectively) and 10% Morgan Stanley Capital
International (MSCI) All Country (AC) World Free (ex-U.S.) Index. The MSCI AC
World Free (Ex-U.S.) Index includes performance of 2,124 securities listed in
45 countries, which includes the countries contained in the MSCI EAFE Index,
as well as North American countries (excluding the U.S.) and other emerging
markets worldwide. The index covers approximately the top 60% of market
capitalization for each of the countries included within the index. The MSCI
EAFE Index consists of foreign companies located in developed markets of 21
different countries in Europe, Australia, Asia and the Far East.
9
<PAGE> 11
- --------------------------------------------------------------------------------
FOREIGN SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN SECURITIES PORTFOLIO
----------------------------
<S> <C>
1989 29.08%
1990 -12.75%
1991 -0.25%
1992 -13.09%
1993 30.22%
1994 -3.23%
1995 12.58%
1996 11.45%
1997 -1.03%
1998 10.71%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 17.47% (quarter ended 12/31/98) and the lowest return for a quarter
was -20.12% (quarter ended 9/30/90).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Foreign Securities Portfolio 10.71% 5.88% 5.40% 5.08%
- --------------------------------------------------------------------------------------------------------
Lipper VA-UF International
Category(2) 13.30% 9.60% 8.90% 6.70%
- --------------------------------------------------------------------------------------------------------
MSCI AC World Free (ex-U.S.) Index(3) 14.50% 7.90% 5.60% N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is March 23, 1987. The since inception
returns for the Lipper VA-UF International Category are as of the inception
date month end.
2 The Lipper Variable Annuity-Underlying Fund (VA-UF) International Average
includes funds which invest assets in securities whose primary trading
markets are outside of the U.S.
3 The Morgan Stanley Capital International (MSCI) All Country (AC) World Free
(ex-U.S.) Index is described in a footnote to the Strategic Multi-Asset
Portfolio table.
10
<PAGE> 12
- --------------------------------------------------------------------------------
NATURAL RESOURCES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATURAL RESOURCES PORTFOLIO
---------------------------
<S> <C>
1989 18.33%
1990 -15.02%
1991 4.87%
1992 2.52%
1993 36.15%
1994 1.01%
1995 17.46%
1996 14.11%
1997 -8.59%
1998 -17.33%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 14.32% (quarter ended 12/31/93) and the lowest return for a quarter
was -17.46% (quarter ended 12/31/97).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Natural Resources Portfolio -17.33% 0.46% 4.18% 4.84%
- --------------------------------------------------------------------------------------------------------
S&P 500(R)(2) 28.60% 24.10% 19.20% 18.70%
- --------------------------------------------------------------------------------------------------------
Lipper VA-UF Natural Resources Category(3) -20.70% -2.00% 2.00% -1.30%
- --------------------------------------------------------------------------------------------------------
MSCI Energy Sources Index(4) 7.10% 16.00% N/A N/A
- --------------------------------------------------------------------------------------------------------
MSCI Gold Mines Index(4) -8.40% -11.80% N/A N/A
- --------------------------------------------------------------------------------------------------------
MSCI Non-Ferrous Metals Index(4) -11.60% -2.20% N/A N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is January 4, 1988. Except for the MSCI
indices, the since inception returns for the comparative indices are as of
the inception date month end.
2 The S&P 500(R) Composite Stock Price Index (S&P 500(R)) is an unmanaged,
weighted index of 500 large company stocks that is widely recognized as
representative of the performance of the U.S. stock market.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) Natural Resources
Category includes funds that invest more than 65% of its equity commitment in
natural resource stocks.
4 The Morgan Stanley Capital International (MSCI) Energy Sources, Gold Mines
and Non-Ferrous Metals Indices represent specific commodities underlying the
Natural Resources Portfolio.
11
<PAGE> 13
- --------------------------------------------------------------------------------
MULTI-ASSET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-ASSET PORTFOLIO
---------------------
<S> <C>
1989 19.69%
1990 1.62%
1991 27.28%
1992 8.22%
1993 7.31%
1994 -1.68%
1995 24.94%
1996 13.87%
1997 21.12%
1998 24.47%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 12.98% (quarter ended 12/31/98) and the lowest return for a quarter
was -8.61% (quarter ended 9/30/90).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Multi-Asset Portfolio 24.47% 16.09% 14.25% 12.37%
- --------------------------------------------------------------------------------------------------------
S&P 500(R)(2) 28.60% 24.10% 19.20% 16.20%
- --------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index(3) 8.70% 7.30% 9.30% 8.60%
- --------------------------------------------------------------------------------------------------------
Lipper VA-UF Flexible Category(4) 13.50% 13.60% 14.00% 11.50%
- --------------------------------------------------------------------------------------------------------
Custom Index(5) 20.80% 17.20% 15.10% N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is March 23, 1987. Except for the Custom
Index, the since inception returns for the comparative indices are as of the
inception date month end.
2 The S&P 500(R) Composite Stock Price Index (S&P 500(R)) is an unmanaged,
weighted index of 500 large company stocks that is widely recognized as
representative of the performance of the U.S. stock market.
3 The Lehman Brothers Aggregate Index combines several Lehman Brothers indexes
which include the government and corporate markets, agency mortgage
pass-through securities, and asset-backed securities.
4 The Lipper Variable Annuity-Underlying Fund (VA-UF) Flexible Category
includes funds which allocate their investments across various asset classes,
including domestic common stocks, bonds, and money market instruments, with a
focus on total return.
5 Custom Index consists of 60% S&P 500(R), 35% Lehman Brothers Aggregate Index
(as described above in footnotes 2 and 3, respectively) and 5% 3-month
T-bill.
12
<PAGE> 14
- --------------------------------------------------------------------------------
STRATEGIC MULTI-ASSET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC MULTI-ASSET PORTFOLIO
-------------------------------
<S> <C>
1989 19.79%
1990 -7.57%
1991 24.19%
1992 3.94%
1993 15.31%
1994 -2.58%
1995 22.77%
1996 14.81%
1997 14.32%
1998 15.21%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 15.96% (quarter ended 12/31/98) and the lowest return for a quarter
was -15.78% (quarter ended 9/30/90).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Strategic Multi-Asset Portfolio 15.21% 12.58% 11.54% 10.26%
- --------------------------------------------------------------------------------------------------------
Lipper VA-UF Global Flexible Average(3) 10.60% 13.00% 12.30% 10.30%
- --------------------------------------------------------------------------------------------------------
MSCI AC World Free USD Index(4) 22.00% 14.80% 10.90% N/A
- --------------------------------------------------------------------------------------------------------
Salomon Brothers World Gov't Bond-U.S.$
Hedge Index(5) 11.00% 8.70% 9.20% 8.70%
- --------------------------------------------------------------------------------------------------------
Custom Index(6) 17.10% 13.20% 11.60% N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is March 23, 1987. Except for the MSCI and
Custom Indices, the since inception returns for the comparative indices are
as of the inception date month end.
2 The S&P 500(R) Composite Stock Price Index (S&P 500(R)) is an unmanaged,
weighted index of 500 large company stocks that is widely recognized as
representative of the performance of the U.S. stock market.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) Global Flexible Average
includes funds that allocate their investments across various asset classes,
including both domestic and foreign stocks, bonds and money market
instruments, with a focus on total return. At least 25% of its portfolio is
invested in securities traded outside of the U.S., including shares of gold
mines, gold-oriented mining finance houses, gold coins, or bullion.
4 The Morgan Stanley Capital International (MSCI) All Country (AC) World Free
USD Index is a market capitalization weighted benchmark of the listed
securities of Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile,
China, Colombia, Czech Republic, Denmark, Finland, France, Germany,
13
<PAGE> 15
Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan,
Jordan, Korea, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan,
Peru, Philippines, Poland, Portugal, Russia, Singapore, South Africa, Spain,
Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Kingdom,
United States, and Venezuela, that uses an arbitrary sampling of stocks and
aims to capture 60% of the total market capitalization at both the country
and industry levels.
5 The Salomon Smith Barney World Government Bond -- U.S.$ Hedge Index is a
market capitalization weighted, total return benchmark designed to cover the
government bond markets of Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Spain, Sweden,
Switzerland, United Kingdom, the United States and Portugal. For a country to
be added to the Index, its eligible issues must total at least US$20 billion,
DM30 billion, and Y2.5 trillion for three consecutive months.
6 Custom Index consists of 65% MSCI AC World Free USD Index, 20% Salomon Smith
Barney World Gov't Bond -- (U.S. $ Hedge) Index (as described above in
footnotes 4 and 5, respectively), 10% Lehman Brothers High Yield Index, and
5% 3-month T-bill. Custom Index prior to 2/28/98 consisted of 30% MSCI AC
World Free ex-U.S. Index, 20% Lehman Brothers Aggregate Index, 30% S&P 500
Index (as described above in footnote 2) and 10% Russell 2000 Index, and 10%
3-month T-bill. The Lehman Brothers High Yield Index covers the universe of
fixed rate, publicly issued, non-investment grade debt registered with the
SEC. All bonds included in the index must be U.S. dollar-denominated and
non-convertible. The Morgan Stanley Capital International (MSCI) All Country
(AC) World Free (Ex-U.S.) Index is described in footnote 5 on page 9. The
Lehman Brothers Aggregate Index combines several Lehman Brothers indices
which include the government and corporate markets, agency mortgage
pass-through securities, and asset-backed securities. The Russell 2000 Index
represents the top 2,000 stocks traded on the New York Stock Exchange,
American Stock Exchange and National Association of Securities Dealers
Automated Quotations, by market capitalizations.
14
<PAGE> 16
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------
<S> <C>
1989 8.20%
1990 7.40%
1991 5.60%
1992 3.40%
1993 2.00%
1994 3.80%
1995 5.60%
1996 5.00%
1997 5.10%
1998 5.10%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 2.35% (quarter ended 6/30/89) and the lowest return for a quarter
was 0.64% (quarter ended 6/30/93).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Money Market Portfolio 5.04% 4.89% 5.30% 5.75%
- --------------------------------------------------------------------------------------------------
</TABLE>
* Inception date for the Portfolio is 12/31/84.
15
<PAGE> 17
- --------------------------------------------------------------------------------
GOVERNMENT AND QUALITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT AND QUALITY BOND
---------------------------
<S> <C>
1989 15.62%
1990 7.79%
1991 17.29%
1992 6.90%
1993 8.27%
1994 -3.07%
1995 19.42%
1996 2.89%
1997 9.53%
1998 9.18%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 9.76% (quarter ended 6/30/98) and the lowest return for a quarter
was -3.09% (quarter ended 3/31/94).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Government and Quality Bond Portfolio 9.18% 7.33% 9.19% 10.60%
- ----------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index(2) 8.70% 7.30% 9.30% 10.40%
- ----------------------------------------------------------------------------------------------------
Lipper VA-UF General U.S. Government
Category(3) 8.10% 6.40% 8.70% 9.30%
- ----------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is September 5, 1984. The since inception
returns for the comparative indices are as of the inception date month end.
2 The Lehman Brothers Aggregate Index combines several Lehman Brothers indices
which include the government and corporate markets, agency mortgage
pass-through securities, and asset-backed securities.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) General U.S. Government
Category includes funds which invest at least 65% of assets in U.S.
government and agency issues.
16
<PAGE> 18
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME PORTFOLIO
----------------------
<S> <C>
1989 12.63%
1990 7.87%
1991 15.23%
1992 6.50%
1993 7.95%
1994 -3.23%
1995 19.18%
1996 2.42%
1997 9.43%
1998 8.01%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 7.13% (quarter ended 6/30/89) and the lowest return for a quarter
was -2.82% (quarter ended 3/31/94).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Fixed Income Portfolio 8.00% 6.90% 8.43% 10.09%
- ----------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate
Index(2) 9.50% 7.30% 9.30% 10.30%
- ----------------------------------------------------------------------------------------------------
Lipper VA-UF Corporate Debt Category(3) 8.10% 6.70% 8.90% 10.30%
- ----------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is September 5, 1984. The since inception
returns for the comparative indices are as of the inception date month end.
2 The Lehman Brothers Government/Corporate Index includes Treasury and agency
securities, as well as corporate bonds and Yankee (U.S.-dollar denominated,
non U.S. issuer) issues.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) Corporate Debt Category
includes funds which invest at least 65% of assets in corporate and
government debt issues rated in the top four credit rating categories.
17
<PAGE> 19
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO
--------------------
<S> <C>
1989 -2.84%
1990 -10.75%
1991 33.06%
1992 13.91%
1993 19.08%
1994 -4.48%
1995 18.78%
1996 11.70%
1997 11.38%
1998 -4.48%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 12.92% (quarter ended 3/31/91) and the lowest return for a quarter
was -11.45% (quarter ended 9/30/98).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE PAST TEN RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1998) YEAR YEARS YEARS INCEPTION(1)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
High Yield Portfolio -4.48% 6.16% 7.75% 8.21%
- ----------------------------------------------------------------------------------------------------
Lehman Brothers High Yield Index(2) 1.90% 8.60% 10.50% 10.80%
- ----------------------------------------------------------------------------------------------------
Lipper VA-UF High Current Yield
Category(3) .10% 7.90% 9.90% 9.60%
- ----------------------------------------------------------------------------------------------------
</TABLE>
1 Inception date for the Portfolio is January 2, 1986. The since inception
returns for the comparative indices are as of December 31, 1985.
2 The Lehman Brothers High Yield Index covers the universe of fixed rate,
publicly issued, non-investment grade debt registered with the Securities and
Exchange Commission. All bonds included in the index must be U.S.
dollar-denominated and non-convertible.
3 The Lipper Variable Annuity-Underlying Fund (VA-UF) High Current Yield
Category includes funds which aim at high (relative) current yield from fixed
income securities. There are no quality or maturity restrictions, though
these funds tend to invest in lower grade debt issues.
18
<PAGE> 20
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Shares of each Portfolio are not offered directly to the public. Instead, shares
are currently 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 and Presidential Life Insurance Company (the "Life
Companies"). All shares of the Trust are owned by "Separate Accounts" of the
Life Companies. So if you would like to invest in a Portfolio, you must purchase
a Variable Contract. You should be aware that the contracts involve fees and
expenses that are not described in this Prospectus, and that the contracts also
may involve certain restrictions and limitations. Certain Portfolios may not be
available in connection with a particular contract. You will find information
about purchasing a Variable Contract and the Portfolios available to you in the
prospectus that offers the contracts, which accompanies this Prospectus.
Anchor National Life Insurance Company and First SunAmerica Life Insurance
Company are under common control with, and therefore are affiliated with the
Trust's investment advisor and manager, SunAmerica Asset Management Corp.
(SAAMCo). Presidential Life Insurance Company is not affiliated with SAAMCo. 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 SAAMCo. Nevertheless, the Trust's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts that may possibly arise and to determine what action,
if any, should be taken in response. 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.
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each Portfolio,
other than the MONEY MARKET PORTFOLIO, is determined each business day at the
close of regular trading on the New York Stock Exchange (generally 4:00 p.m.,
Eastern time) by dividing its net assets by the number of its shares
outstanding. Investments for which market quotations are readily available are
valued at market. All other securities and assets of the Portfolios, except for
the MONEY MARKET PORTFOLIO, are valued at "fair value" following procedures
approved by the Trustees. Securities held by the MONEY MARKET PORTFOLIO are
valued on an amortized cost method.
Each Portfolio may invest to an extent in securities that are primarily listed
on foreign exchanges that trade on weekends or other days when the Trust does
not price its shares. As a result, the value of these Portfolios' shares may
change on days when you will not be able to purchase or redeem your shares.
BUY AND SELL PRICES The Separate Accounts buy and sell shares of a Portfolio for
NAV, without any sales or other charges.
EXECUTION OF REQUESTS The Trust is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at the
next NAV to be calculated after the request is accepted by the Trust. If the
order is received by the Trust before the Trust's close of business, it will
receive that day's closing price. If the order is received after that time, it
will receive the next business day's closing price.
During periods of extreme volatility or market crisis, a Portfolio may
temporarily suspend the processing of sell requests, or may postpone payment of
proceeds for up to seven business days or longer, as allowed by federal
securities laws.
19
<PAGE> 21
DIVIDEND POLICIES AND TAXES
DIVIDEND REINVESTMENTS The dividends and distributions, if any, will be
automatically reinvested in additional shares of the same Portfolios on which
they were paid.
TAXABILITY OF A PORTFOLIO Each Portfolio intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. As long as each Portfolio is qualified as a regulated investment
company, it will not be subject to federal income tax on the earnings that it
distributes to its shareholders.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
SUBSTITUTION APPLICATION -- FIXED INCOME AND FOREIGN SECURITIES PORTFOLIOS
On January 5, 1999, the Life Companies and the Trust filed a Substitution
Application with the Securities and Exchange Commission to permit the
substitution of: (a) shares of the GOVERNMENT AND QUALITY BOND PORTFOLIO for
shares of the FIXED INCOME PORTFOLIO; and (b) shares of the STRATEGIC
MULTI-ASSET PORTFOLIO for shares of the FOREIGN SECURITIES PORTFOLIO (the
"Substitution"). The Trust and the Life Companies have decided that it is in the
best interest of shareholders to discontinue offering shares of the FIXED INCOME
and FOREIGN SECURITIES PORTFOLIOS because these Portfolios have not retained
sufficient contract interest, and as a result they are dwindling in size, which
makes it difficult to manage the assets so as to maximize performance. The Life
Companies believe that the GOVERNMENT AND QUALITY BOND and STRATEGIC MULTI-ASSET
PORTFOLIOS are appropriate replacements because: (a) the GOVERNMENT AND QUALITY
BOND PORTFOLIO has an investment goal similar to the FIXED INCOME PORTFOLIO,
invests in the same types of securities (i.e., fixed income securities) and
generally has better performance and lower expenses; and (b) the STRATEGIC
MULTI-ASSET PORTFOLIO has a similar investment objective to the FOREIGN
SECURITIES PORTFOLIO, generally invests a significant portion of its assets in
foreign securities, generally has better performance and has a similar expense
ratio which may decline as a result of the influx of assets resulting from the
Substitution.
If the application is granted, the Life Companies will effect the Substitution
by redeeming shares of the replaced Portfolios and simultaneously purchasing
shares of the substituted Portfolios at the close of business on the date
selected for the Substitution. The foregoing transactions will not change the
amount of any contract value, death benefit or investment in an applicable
Variable Contact. The Life Companies will assume all expenses and transactions
costs of the Substitution, including brokerage costs, legal, accounting and
other fees and expenses.
YEAR 2000
Many computer and computer-based systems cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates (commonly known
as the "Year 2000 Issue"). The Year 2000 Issue could potentially have an adverse
impact on the handling of security trades, the payment of interest and
dividends, pricing and account services. We recognize the importance of the Year
2000 Issue and are taking appropriate steps necessary in preparation for the
year 2000. The Trust's management fully anticipates that their systems will be
adapted in time for the year 2000, and to further this goal they have
coordinated a plan to repair, adapt or replace their systems as necessary. They
have also obtained representations from their outside service providers that
they are doing the same. The Trust's management completed their plan
significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Trust could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Trust invests, which could hurt the Trust's investment returns.
20
<PAGE> 22
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT THE PORTFOLIOS
- --------------------------------------------------------------------------------
INVESTMENT SELECTION
Each Portfolio buys and sells securities based on bottom-up investment analysis
and individual security selection, with an aim to uncover opportunities with
potential for price appreciation. A bottom-up investment approach searches for
outstanding performance of individual stocks before considering the impact of
economic or industry trends. Each Portfolio is managed using a proprietary
fundamental analysis in order to select securities which are deemed to be
consistent with the Portfolio's investment objective and are priced
attractively. Fundamental analysis of a company involves the assessment of such
factors as its business environment, management, balance sheet, income
statement, anticipated earnings, revenues, dividends, and other related measures
of value. Securities are sold when the investment has achieved its intended
purpose, or because it is no longer considered attractive.
INVESTMENT STRATEGIES
Each Portfolio has its own investment goal and a strategy for pursuing it. The
charts provided below summarize information about each Portfolio's investment
approach. We have included a glossary to define the investment and risk
terminology used in the charts and throughout this Prospectus. You should
consider your ability to assume the risks involved before investing in a
Portfolio through one of the variable contracts.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH & CAPITAL FOREIGN NATURAL
INCOME GROWTH APPRECIATION SECURITIES RESOURCES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
What is the high current capital long-term capital long-term capital total return in
Portfolio's income and appreciation appreciation appreciation excess of the U.S.
investment goal? long-term rate of inflation
capital as represented by
appreciation the Consumer Price
Index
- -----------------------------------------------------------------------------------------------------------------------------
What are the equity securities core equity growth equity core equity equity securities
Portfolio's (at least 65%) securities that securities across securities issued of U.S. or foreign
principal that provide the are widely a wide range of by foreign companies expected
investments (under potential for diversified by industries and companies; to provide
normal market growth and offer industry and companies opportunistically favorable returns
conditions)? income, such as company invests in in periods of
dividend- paying emerging markets rising inflation;
stocks and smaller at least 65%
companies related to natural
resources such as
energy, metals,
mining and forest
products
- -----------------------------------------------------------------------------------------------------------------------------
What are the - stock and bond - stock market - stock market - foreign exposure - foreign exposure
Portfolio's market volatility volatility - emerging markets - emerging markets
principal risks? volatility - security - security - stock market - stock market
- security selection selection volatility volatility
selection - growth stocks - growth stocks - security - small market
- interest rate - small market - small market selection capitalization
fluctuations capitalization capitalization - small market - natural
capitalization resources sector
- security
selection
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS (cont'd)
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH & CAPITAL FOREIGN NATURAL
INCOME GROWTH APPRECIATION SECURITIES RESOURCES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
What other
investment
strategies can the
Portfolio use?
- Large company Yes Yes Yes Yes Yes
stocks
- Medium Yes Yes Yes Yes Yes
sized company
stocks
- Small company Yes Yes Yes Yes Yes
stocks
- Warrants Yes Yes Yes Yes Yes
- Types of fixed
income
securities:
Investment grade Yes Yes Yes Yes Yes
Junk bonds Yes No No No No
(up to 20%)
U.S. government Yes Yes Yes Yes Yes
securities
Short-term money Yes Yes Yes Yes Yes
market
instruments
Convertible Yes Yes Yes Yes Yes
securities (up to 20%)
- Borrowing for Yes Yes Yes Yes Yes
temporary or (up to 10%) (up to 10%) (up to 10%) (up to 10%) (up to 10%)
emergency
purposes
- Defensive Yes Yes Yes Yes Yes
investments
- Foreign Yes Yes Yes See principal Yes
securities (up to 20%) (up to 25%) (up to 25%) investments
section
above
- ADRs/EDRs/ GDRs Yes Yes Yes Yes Yes
- Currency Yes Yes Yes Yes Yes
transactions
- Illiquid Yes Yes Yes Yes Yes
securities (up to 10%) (up to 10%) (up to 10%) (up to 10%) (up to 10%)
- Options and Yes Yes Yes Yes Yes
futures
- Forward Yes Yes Yes Yes Yes
commitments
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS (cont'd)
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH & CAPITAL FOREIGN NATURAL
INCOME GROWTH APPRECIATION SECURITIES RESOURCES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
What other
investment
strategies can the
Portfolio use?
(continued)
- When-issued Yes Yes Yes Yes Yes
/delayed delivery
transactions
- Securities Yes No No No No
lending (up to 33 1/3%)
- Special Yes Yes Yes Yes Yes
situations
----------------------------------------------------------------------------------------------
- Active trading Yes Yes Yes Yes Yes
- REITs Yes Yes Yes Yes Yes
- Other investment No No No No Yes
companies
- -----------------------------------------------------------------------------------------------------------------------------
What other - foreign exposure - foreign exposure - foreign exposure - credit quality - credit quality
potential risks can - junk bonds - emerging markets - emerging markets - illiquidity - illiquidity
affect the - credit quality - credit quality - credit quality - prepayment - prepayment
Portfolio? - illiquidity - illiquidity illiquidity - derivatives - derivatives
- prepayment - prepayment - prepayment - hedging - hedging
- derivatives - derivatives - derivatives - interest rate
- hedging - hedging - hedging fluctuations
- interest rate - interest rate
fluctuations fluctuations
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
ALLOCATION PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------
STRATEGIC
MULTI-ASSET MULTI-ASSET
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
What is the Portfolio's investment long-term total investment return high long-term total investment
goal? consistent with moderate investment return
risk
- -----------------------------------------------------------------------------------------------------------------------
What are the Portfolio's principal actively allocates the Portfolio's actively allocates the Portfolio's
investments (under normal market assets among equity securities, assets among equity securities of
conditions)? investment grade fixed income U.S. and foreign companies, medium
securities and cash with less risk and small company equity securities,
than the Strategic Multi-Asset global fixed income securities
Portfolio (including high-yield, high-risk
bonds) and cash.
- -----------------------------------------------------------------------------------------------------------------------
What are the Portfolio's principal - stock and bond market volatility - foreign exposure
risks? - stock selection - emerging markets
- security selection - stock and bond market volatility
- interest rate fluctuations - stock selection
- credit quality - security selection
- small market capitalization - interest rate fluctuations
- junk bonds
- credit quality
- small market capitalization
- prepayment
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 25
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
ALLOCATION PORTFOLIOS (cont'd)
- -----------------------------------------------------------------------------------------------------------------------
STRATEGIC
MULTI-ASSET MULTI-ASSET
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
What other investment strategies
can the Portfolio use?
(continued)
- Large company stocks Yes Yes
- Medium sized company stocks Yes Yes
- Small company stocks Yes Yes
- Warrants Yes Yes
- Types of fixed income securities: See principal investments section See principal investments section
above above
Investment grade See principal investments section Yes
above
Junk bonds No See principal investments section
above
U.S. government securities Yes Yes
Asset-backed and mortgage-backed Yes Yes
securities
Short-term money market Yes Yes
instruments
Non-convertible preferred stocks Yes Yes
Convertible securities Yes Yes
- Borrowing for temporary or Yes (up to 10%) Yes (up to 10%)
emergency purposes
- Defensive investments Yes Yes
- Foreign securities Yes See principal investments section
above
- ADRs/EDRs/GDRs Yes Yes
- Currency transactions Yes Yes
- Illiquid securities Yes (up to 10%) Yes (up to 10%)
- Options and futures Yes Yes
- Forward commitments Yes Yes
- Zero-coupon bonds Yes No
- When-issued /delayed delivery Yes Yes
transactions
- Securities lending No No
- Special situations Yes Yes
- Active trading Yes Yes
- REITs Yes Yes
- Other investment companies No No
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
ALLOCATION PORTFOLIOS (cont'd)
- -----------------------------------------------------------------------------------------------------------------------
STRATEGIC
MULTI-ASSET MULTI-ASSET
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
What other potential risks can - foreign exposure - illiquidity
affect the Portfolio? - emerging markets - prepayment
- illiquidity - derivatives
- prepayment - hedging
- derivatives
- hedging
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------
GOVERNMENT
AND QUALITY
MONEY MARKET BOND FIXED INCOME HIGH YIELD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What is the current income relatively high high level of current high current income
Portfolio's consistent with current income, income consistent with and, secondarily,
investment goal? stability of principal liquidity and security preservation of capital appreciation
of principal capital
- ----------------------------------------------------------------------------------------------------------------------
What are the a diversified obligations issued, investment grade bonds high-yielding,
Portfolio's portfolio of money guaranteed or insured and other fixed income high-risk, income
principal market instruments by the U.S. securities producing ("junk")
investments (under maturing in 397 days government, its bonds (at least 65%)
normal market or less and agencies or and other fixed income
conditions)? maintaining a dollar- instrumentalities and securities
weighted average high quality corporate
portfolio maturity of fixed income
not more than 90 days securities
- ----------------------------------------------------------------------------------------------------------------------
What are the - bond market - bond market - bond market - bond market
Portfolio's volatility volatility volatility volatility
principal risks? - securities selection - securities selection - securities selection - securities selection
- interest rate - interest rate - interest rate - interest rate
fluctuations fluctuations fluctuations fluctuations
- credit quality - credit quality - credit quality - junk bonds
- credit quality
- ----------------------------------------------------------------------------------------------------------------------
What other
investment
strategies can the
Portfolio use?
- Large company Yes Yes Yes Yes
stocks
- Medium-sized Yes Yes Yes Yes
company stocks
- Small company Yes Yes Yes Yes
stocks
- Warrants No Yes Yes (up to 10%) Yes
- Types of fixed
income securities:
Investment grade See principal See principal See principal Yes
investments section investments section investments section
above above above
Junk bonds No No Yes (up to 20%) See principal
investments section
above
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 27
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIOS (cont'd)
- ----------------------------------------------------------------------------------------------------------------------
GOVERNMENT
AND QUALITY
MONEY MARKET BOND FIXED INCOME HIGH YIELD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What other
investment
strategies can the
Portfolio use?
(continued)
U.S. government Yes See principal Yes Yes
securities investments section
above
Asset-backed and Yes Yes Yes Yes
mortgage-backed
securities
Short-term money See principal Yes Yes Yes
market instruments investments section
above
Non-convertible No Yes Yes Yes
preferred stocks
Convertible No Yes Yes (up to 20%) Yes
securities
- Borrowing for Yes (up to 10%) Yes (up to 10%) Yes (up to 10%) Yes (up to 10%)
temporary or
emergency purposes
- Defensive No Yes Yes Yes
investments
- Foreign securities Yes (foreign Yes Yes Yes
money market
instruments only)
- ADRs/EDRs/GDRs No No No No
- Currency No Yes Yes Yes
transactions
- Illiquid Yes (up to 10%) Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
securities
- Options and No Yes Yes Yes
futures
- Forward Yes Yes Yes Yes
commitments
- Zero-coupon bonds No Yes Yes Yes
- When-issued Yes Yes Yes Yes
/delayed delivery
transactions
- Securities lending No No No No
- Special situations No Yes Yes Yes
- Active trading Yes Yes Yes Yes
- Other investment No No No No
companies
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 28
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIOS (cont'd)
- ----------------------------------------------------------------------------------------------------------------------
GOVERNMENT
AND QUALITY
MONEY MARKET BOND FIXED INCOME HIGH YIELD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What other potential - illiquidity - foreign exposure - foreign exposure - foreign exposure
risks can affect the - prepayment - emerging markets - emerging markets - emerging markets
Portfolio? - illiquidity - illiquidity - illiquidity
- prepayment - prepayment - prepayment
- derivatives - derivatives - derivatives
- hedging - hedging - hedging
- small market - small market - small market
capitalization capitalization capitalization
- stock market - stock market - stock market
volatility volatility volatility
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 29
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
INVESTMENT TERMINOLOGY
LARGE COMPANIES generally have market capitalizations of over $5 billion,
although there may be some overlap among capitalization categories.
MEDIUM SIZED COMPANIES generally have market capitalizations ranging from $1
billion to $5 billion, although there may be some overlap among capitalization
categories.
SMALL COMPANIES generally have market capitalizations of $1 billion or less,
although there may be some overlap among capitalization categories.
WARRANTS are rights to buy common stock of a company at a specified price during
the life of the warrant.
FIXED INCOME SECURITIES provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible
securities, U.S. government securities and mortgage-backed and asset-backed
securities. The issuer of a senior fixed income security is obligated to make
payments on this security ahead of other payments to security holders.
An INVESTMENT GRADE fixed income security is rated in one of the top four
ratings categories by a debt rating agency (or is considered of comparable
quality by the Subadviser). The two best-known debt rating agencies are Standard
& Poor's Rating Services, a Division of The McGraw-Hill Companies, Inc. and
Moody's Investors Service, Inc. "Investment grade" refers to any security rated
"BBB" or above by Standard & Poor's or "Baa" or above by Moody's.
A "JUNK BOND" is a high yield, high risk bond that does not meet the credit
quality standards of investment grade securities.
U.S. GOVERNMENT SECURITIES are issued or guaranteed by the U.S. government, its
agencies and instrumentalities. Some U.S. government securities are issued or
unconditionally guaranteed by the U.S. Treasury. They are of the highest
possible credit quality. While these securities are subject to variations in
market value due to fluctuations in interest rates, they will be paid in full if
held to maturity. Other U.S. government securities are neither direct
obligations of, nor guaranteed by, the U.S. Treasury. However, they involve
federal sponsorship in one way or another. For example some are backed by
specific types of collateral; some are supported by the issuer's right to borrow
from the Treasury; some are supported by the discretionary authority of the
Treasury to purchase certain obligations of the issuer; and others are supported
only by the credit of the issuing government agency or instrumentality.
ASSET-BACKED SECURITIES represent an interest in a pool of consumer or other
types of loans. Payments of principal and interest on the underlying loans are
typically passed through to the holders of asset-backed securities over the life
of the securities. MORTGAGE-BACKED SECURITIES represent an undivided ownership
interest in a pool of mortgages.
SHORT-TERM MONEY MARKET SECURITIES include money market securities such as
short-term U.S. government obligations, repurchase agreements, commercial paper,
bankers' acceptances and certificates of deposit. These securities generally
provide a Portfolio with sufficient liquidity to meet redemptions and cover
expenses.
PREFERRED STOCK is a class of capital stock that pays dividends at a specified
rate and that has preference over common stock in the payment of dividends and
the liquidation of assets.
CONVERTIBLE SECURITIES are securities (such as bonds or preferred stocks) that
may be converted into common stock of the same or a different company.
The Trust may BORROW FOR TEMPORARY OR EMERGENCY PURPOSES including to meet
redemptions. Borrowing may exaggerate changes in a Trust's net asset value and
yield. Borrowing will cost the Trust interest expense and other fees. The cost
of borrowing may reduce the Trust's return.
28
<PAGE> 30
DEFENSIVE INVESTMENTS include high quality fixed income securities and money
market instruments. A Portfolio will make temporary defensive investments in
response to adverse market, economic, political or other conditions. When a
Portfolio takes a defensive position, it may miss out on investment
opportunities that could have resulted from investing in accordance with its
principal investment strategy. As a result, a Portfolio may not achieve its
investment goal.
FOREIGN SECURITIES are issued by companies located outside of the United States,
including emerging markets. Foreign securities may include AMERICAN DEPOSITARY
RECEIPTS (ADRS), EUROPEAN DEPOSITARY RECEIPTS (EDRS) and GLOBAL DEPOSITARY
RECEIPTS (GDRS). ADRs are securities that trade in U.S. markets but represent
ownership interests in a foreign security. EDRs are receipts issued in Europe
that evidence ownership of either foreign or domestic underlying securities.
GDRs are issued globally and evidence a similar ownership arrangement.
CURRENCY TRANSACTIONS include the purchase and sale of currencies to facilitate
securities transactions, and forward currency contracts, which are generally
used to hedge against changes in currency exchange rates.
ILLIQUID SECURITIES are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
as Rule 144A securities) are not generally considered illiquid because of their
established trading market.
OPTIONS AND FUTURES are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more
underlying assets or a market or economic index.
FORWARD COMMITMENTS are commitments to purchase or sell securities at a future
date. A Portfolio purchasing a forward commitment assumes the risk of any
decline in value of the securities beginning on the date of the agreement.
ZERO COUPON BONDS are non-interest bearing debt obligations payable in full at
maturity that 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. However, the value of zero coupon securities 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.
WHEN-ISSUED OR DELAYED-DELIVERY TRANSACTIONS call for the purchase or sale of
securities at an agreed-upon price on a specified future date. At the time of
delivery of the securities, the value may be more or less than the purchase
price.
SECURITIES LENDING involves a loan of securities by a Portfolio in exchange for
cash or collateral. The Portfolio earns interest on the loan while retaining
ownership of the security.
A SPECIAL SITUATION arises when, in the opinion of the Subadviser, the
securities of a particular issuer will be recognized and appreciated in value
due to a specific development with respect to that issuer. Developments creating
a special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investments in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
ACTIVE TRADING means that a Portfolio may engage in frequent trading of
portfolio securities to achieve its investment goal. In addition, because a
Portfolio may sell a security without regard to how long it has held the
security, active trading may have tax consequences for certain shareholders,
involving a possible increase in short-term capital gains or losses. Active
trading may result in high portfolio turnover and correspondingly greater
brokerage commissions and other transaction costs, which will be borne directly
by a Portfolio. During periods of increased market volatility, active trading
may be more pronounced. At times each Portfolio (other than the Money Market
Portfolio) may engage in short-term trading, which could produce higher
brokerage expenses for a fund and higher taxable distributions to the
Portfolio's shareholders.
29
<PAGE> 31
REITS (real estate investment trusts) are trusts that invest primarily in
commercial real estate or real estate related loans. The value of an interest in
a REIT may be affected by the value and the cash flows of the properties owned
or the quality of the mortgages held by the trust.
A Portfolio may invest in the securities of OTHER INVESTMENT COMPANIES
(including foreign investment companies) that make investments expected to
provide a hedge against anticipated inflation.
RISK TERMINOLOGY
MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities in a
Portfolio's portfolio.
SECURITY SELECTION: A strategy used by a Portfolio, or securities selected by
its portfolio manager, may fail to produce the intended return.
GROWTH STOCKS: Growth stocks can be volatile for several reasons. Since the
issuers usually reinvest a high portion of earnings in their own businesses,
growth stocks may lack the comfortable dividend yield associated with value
stocks that can cushion total return in a bear market. Also, growth stocks
normally carry a higher price/earnings ratio than many other stocks.
Consequently, if earnings expectations are not met, the market price of growth
stocks will often go down more than other stocks. However, the market frequently
rewards growth stocks with price increases when expectations are met or
exceeded.
INTEREST RATE FLUCTUATIONS: Volatility of the bond market is due principally to
changes in interest rates. As interest rates rise, bond prices typically fall;
and as interest rates fall, bond prices typically rise. Longer-term and lower
coupon bonds tend to be more sensitive to changes in interest rates.
CREDIT QUALITY: The creditworthiness of the issuer is always a factor in
analyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue JUNK
BONDS. In addition to the risk of default, junk bonds may be more volatile, less
liquid, more difficult to value and more susceptible to adverse economic
conditions or investor perceptions than other bonds.
FOREIGN EXPOSURE: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In
addition, there may be less publicly available information about a foreign
company and it may not be subject to the same uniform accounting, auditing and
financial reporting standards as U.S. companies. Foreign governments may not
regulate securities markets and companies to the same degree as in the U.S.
Foreign investments will also be affected by local political or economic
developments and governmental actions. Consequently, foreign securities may be
less liquid, more volatile and more difficult to price than U.S. securities.
These risks are heightened when the issuer is in an EMERGING MARKET. An EMERGING
MARKET country is generally a country with low or middle income economy or that
is in the early stages of its industrialization cycle.
ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and price that the seller would like.
PREPAYMENT: Prepayment risk is the possibility that the principal of the loans
underlying pass-through securities such as mortgage-backed or other asset-backed
securities may be prepaid at any time. As a general rule, prepayments increase
during a period of falling interest rates and decrease during a period of rising
interest rates. As a result of prepayments, in periods of declining interest
rates a Portfolio may be required to reinvest its assets in securities with
lower interest rates. In periods of increasing interest rates, prepayments
generally may decline, with the effect that the securities subject to prepayment
risk held by a Portfolio may exhibit price characteristics of longer-term debt
securities.
DERIVATIVES: A derivative is any financial instrument whose value is based on,
and determined by, another security, index or benchmark (i.e., stock options,
futures, caps, floors, etc.). In recent years, derivative securities have become
increasingly important in the field of finance. Futures and options are now
actively
30
<PAGE> 32
traded on many different exchanges. Forward contracts, swaps, and many different
types of options are regularly traded outside of exchanges by financial
institutions in what are termed "over the counter" markets. Other more
specialized derivative securities often form part of a bond or stock issue. To
the extent a contract is used to hedge another position in the portfolio, there
is a risk that changes in the value of the contract will not match those of the
hedged position. To the extent an option or futures contract is used to enhance
return, rather than as a hedge, a Portfolio will be directly exposed to the
risks of the contract. Gains or losses from non-hedging positions may be
substantially greater than the cost of the position.
HEDGING: Hedging is a strategy in which a Portfolio uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio of
securities. While hedging strategies can be very useful and inexpensive ways of
reducing risk, they are sometimes ineffective due to unexpected changes in the
market. Hedging also involves the risk that changes in the value of the
derivative will not match those of the instruments being hedged as expected, in
which case any losses on the instruments being hedged may not be reduced.
Moreover, while hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. Examples of hedging strategies are:
- Long Hedge -- Strategy in which an investor locks in a future price on a
security/index by buying a futures contract.
- Neutral Hedge -- Strategy that is designed to provide the highest
expected return on a portfolio of securities assuming that the price of a
particular investment in the portfolio remains constant.
- Perfect Hedge -- a hedge whose change in value is equal to the change in
value of the underlying security, positive or negative.
- Short Hedge -- Strategy designed to reduce the risk of a decline in value
of a security/index without requiring ownership of that security.
SMALL MARKET CAPITALIZATION: Companies with smaller market capitalizations
(particularly under $1 billion) tend to be at early stages of development with
limited product lines, market access for products, financial resources, access
to new capital, or depth in management. Consequently, the securities of smaller
companies may not be as readily marketable and may be subject to more abrupt or
erratic market movements.
NATURAL RESOURCES SECTOR: The value of equity investments in the natural
resources sector will fluctuate based on a number of factors, including: market
conditions generally; the market for the particular natural resource in which
the issuer is involved; events of nature; and international politics.
31
<PAGE> 33
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
SunAmerica Asset Management Corp. SAAMCo serves as investment adviser and
manager for all the Portfolios of the Trust. SAAMCo oversees the Subadviser,
provides various administrative services and supervises the daily business
affairs of each Portfolio. SAAMCo, located at The SunAmerica Center, 733 Third
Avenue, New York, New York 10017, is a corporation organized in 1982 under the
laws of the state of Delaware. In addition to serving as investment adviser and
manager to the Trust, SAAMCo serves as adviser, manager and/or administrator for
Anchor Pathway Fund, Seasons Series Trust, Style Select Series, Inc., SunAmerica
Equity Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc.,
SunAmerica Series Trust and SunAmerica Strategic Investment Series, Inc. For the
fiscal year ended December 31, 1998, each Portfolio paid SAAMCo a fee equal to
the following percentage of average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO FEE
--------- ----
<S> <C>
Growth and Income Portfolio................................. 0.70%
Growth Portfolio............................................ 0.70%
Capital Appreciation Portfolio.............................. 0.64%
Foreign Securities Portfolio................................ 0.90%
Natural Resources Portfolio................................. 0.75%
Multi-Asset Portfolio....................................... 1.00%
Strategic Multi-Asset Portfolio............................. 1.00%
Money Market Portfolio...................................... 0.50%
Government and Quality Bond Portfolio....................... 0.61%
Fixed Income Portfolio...................................... 0.63%
High Yield Portfolio........................................ 0.70%
</TABLE>
SUBADVISER
Wellington Management Company, LLP (Wellington) acts as Subadviser to each
Portfolio of the Trust, pursuant to a Subadvisory Agreement with SAAMCo.
Wellington is independent of SAAMCo and discharges its responsibilities subject
to the policies of the Trustees and the oversight and supervision of SAAMCo
which pays Wellington's fees.
Wellington is a Massachusetts limited liability partnership. The principal
business address of Wellington is 75 State Street, Boston, Massachusetts 02109.
Wellington is a professional investment counseling firm that provides investment
services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals.
32
<PAGE> 34
PORTFOLIO MANAGEMENT
The following individuals or management team is primarily responsible for the
day-to-day management of the Portfolios as indicated in the following chart:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
PORTFOLIO MANAGER
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
GROWTH AND INCOME PORTFOLIO - Matthew E. Megargel Mr. Megargel has served as the portfolio
Senior Vice President manager for the Portfolio since 1998. He
joined Wellington in 1983 as a global
industry analyst. He also manages the
Multi-Asset Portfolio (see below).
-------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO - Wellington's Growth Wellington's Growth Investment Team has
Investment Team been responsible for managing the
Portfolio since 1995.
-------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION - Robert D. Rands Mr. Rands has served as the portfolio
PORTFOLIO Senior Vice President manager for the Portfolio since its
inception in 1987. He joined Wellington in
1978 as a special situations analyst and
became a portfolio manager in 1983. Mr.
Rands also manages the Strategic Multi-
Asset Portfolio (see below).
-------------------------------------------------------------------------
- Steven C. Angeli Mr. Angeli has served as the assistant
Vice President portfolio manager for the Portfolio since
1998. He joined Wellington as research
analyst in 1994, after receiving his MBA
from Darden Graduate School of Business
Administration at the University of
Virginia. Prior to joining Wellington, Mr.
Angeli worked at Fidelity Management and
Research Company from 1990-1992.
-------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES - Trond Skramstad Mr. Skramstad has been responsible for
PORTFOLIO Senior Vice President managing the Portfolio since 1994 and is
Chairman of Wellington's Global Equity
Strategy Group, which is a group of
regional equity portfolio managers and
senior investment professionals
responsible for providing investment
research and recommendations. He joined
Wellington in 1993 as a Director of
International Equities. Mr. Skramstad also
manages the Strategic Multi-Asset
Portfolio (see below).
-------------------------------------------------------------------------------------------------------
- Andrew S. Offit Mr. Offit has served as the associate
Vice President portfolio manager of the Portfolio since
1997. Mr. Offit joined Wellington as an
international portfolio manager in 1997.
Mr. Offit was previously a portfolio
manager at Chestnut Hill Management during
1997, and analyst and portfolio manager at
Fidelity Management and Research Company
from 1987 to 1997.
-------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
PORTFOLIO MANAGER
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
NATURAL RESOURCES PORTFOLIO - Ernst H. von Metzsch Mr. von Metzsch has served as the
Senior Vice President portfolio manager for the Portfolio since
1994. He joined Wellington in 1973 as an
analyst. He became a portfolio manager in
1984.
-------------------------------------------------------------------------
- James Bevilacqua Mr. Bevilacqua has served as the assistant
Vice President portfolio manager of the Portfolio since
1998. He joined Wellington as an analyst
in the global industry research group in
1994, after receiving his MBA from
Stanford Graduate School of Business.
-------------------------------------------------------------------------------------------------------
MULTI-ASSET PORTFOLIO - John C. Keogh Mr. Keogh has served as portfolio manager
Senior Vice President for the Portfolio since 1994. Mr. Keogh
also serves as portfolio manager for the
Government and Quality Board Portfolio
(see below).
-------------------------------------------------------------------------
- Matthew E. Megargel Mr. Megargel has served as portfolio
Senior Vice President manager for the Portfolio since 1998. Mr.
Megargel also serves as portfolio manager
for the Growth and Income Portfolio (see
above).
-------------------------------------------------------------------------
- Adam D. Seitchik Mr. Seitchik joined Wellington in 1994 as
Vice President an asset allocation analyst, and has
served as portfolio manager and strategist
for the Portfolio since 1997. He also
manages the Strategic Multi-Asset
Portfolio (see below).
-------------------------------------------------------------------------------------------------------
STRATEGIC MULTI-ASSET - Adam D. Seitchik Mr. Seitchik has served as portfolio
PORTFOLIO Vice President manager and strategist for the Portfolio
since 1997. Mr. Seitchik also manages the
Multi-Asset Portfolio (see above).
-------------------------------------------------------------------------
- Trond Skramstad Mr. Skramstad has served as portfolio
Senior Vice President manager for the Portfolio since 1994. Mr.
Skramstad also manages the Foreign
Securities Portfolio (see above).
-------------------------------------------------------------------------
- Robert L. Evans Mr. Evans has served as portfolio manager
Vice President for the Portfolio since 1998. He joined
Wellington Management in 1995 as a
portfolio manager. Prior to joining
Wellington, Mr. Evans was an international
fixed income portfolio manager with
Pacific Investment Company from 1991 to
1995.
-------------------------------------------------------------------------
- Robert D. Rands Mr. Rands has served as portfolio manager
Senior Vice President for the Portfolio since 1994. Mr. Rands
also manages the Capital Appreciation
Portfolio (see above).
-------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
PORTFOLIO MANAGER
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET PORTFOLIO - Timothy E. Smith Mr. Smith has served as the portfolio
Vice President manager for the Portfolio since 1997. He
joined Wellington Management in 1992 as an
investment professional.
-------------------------------------------------------------------------------------------------------
GOVERNMENT AND QUALITY BOND - John C. Keogh Mr. Keogh has served as the portfolio
PORTFOLIO Senior Vice President manager for the Portfolio since 1994. He
joined Wellington Management as a
portfolio manager in 1983. Mr. Keogh also
manages the Multi-Asset Portfolio (see
above).
-------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO - Thomas L. Pappas Mr. Pappas has served as the portfolio
Senior Vice President manager for the Portfolio since 1995. He
has been a portfolio manager with
Wellington since joining the firm in 1987.
-------------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO - Catherine A. Smith Ms. Smith has served as the portfolio
Senior Vice President manager for the Portfolio since 1992. She
joined Wellington in 1985 as a high yield
analyst and began managing fixed income
portfolios in 1988.
-------------------------------------------------------------------------------------------------------
</TABLE>
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, Boston, Massachusetts, acts as Custodian of
the Trust's assets as well as Transfer and Dividend Paying Agent and in so doing
performs certain bookkeeping, data processing and administrative services.
35
<PAGE> 37
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights table for each Anchor Series Trust Portfolio is
intended to help you understand the Portfolio's financial performance for the
past 5 years. Certain information reflects financial results for a single
Portfolio share. The total returns in each table represent the rate that an
investor would have earned on an investment in the Portfolio (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with each Portfolio's
financial statements, is included in the Trust's Annual Report to shareholders,
which is available upon request.
<TABLE>
<CAPTION>
NET DIVIDENDS DIVIDENDS
REALIZED TOTAL DECLARED FROM NET NET
NET ASSET NET & UNREALIZED FROM FROM NET REALIZED NET ASSET ASSETS
VALUE INVEST- GAIN (LOSS) INVEST- INVEST- GAIN ON VALUE END OF
PERIOD BEGINNING MENT ON MENT MENT INVEST- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME* INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN** (000'S)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio
12/31/94 $ 1.00 $0.04 $ -- $ 0.04 $(0.04) $ -- $ 1.00 3.8% $126,004
12/31/95 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.6 93,692
12/31/96 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.0 74,001
12/31/97 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.1 69,804
12/31/98 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.1 65,553
Fixed Income Portfolio
12/31/94 14.54 0.89 (1.36) (0.47) (1.17) -- 12.90 (3.2) 28,582
12/31/95 12.90 0.90 1.52 2.42 (1.16) -- 14.16 19.2 27,975
12/31/96 14.16 0.93 (0.64) 0.29 (1.15) -- 13.30 2.4 22,743
12/31/97 13.30 0.91 0.30 1.21 (1.23) -- 13.28 9.4 18,315
12/31/98 13.28 0.90 0.14 1.04 (1.12) -- 13.20 8.0 17,430
Government & Quality Bond Portfolio
12/31/94 14.22 0.86 (1.30) (0.44) (0.73) (0.19) 12.86 (3.1) 232,530
12/31/95 12.86 0.90 1.55 2.45 (1.08) -- 14.23 19.4 225,579
12/31/96 14.23 0.87 (0.50) 0.37 (0.90) (0.03) 13.67 2.9 221,603
12/31/97 13.67 0.84 0.42 1.26 (0.92) (0.05) 13.96 9.5 234,623
12/31/98 13.96 0.79 0.48 1.27 (0.57) (0.02) 14.64 9.2 375,667
High Yield Portfolio
12/31/94 9.43 0.15 (0.56) (0.41) (1.15) -- 7.87 (4.5) 48,057
12/31/95 7.87 0.77 0.67 1.44 (0.98) -- 8.33 18.8 46,817
12/31/96 8.33 0.74 0.19 0.93 (0.88) -- 8.38 11.7 45,687
12/31/97 8.38 0.75 0.18 0.93 (0.93) -- 8.38 11.4 40,193
12/31/98 8.38 0.71 (1.13) (0.42) (1.16) -- 6.80 (4.5) 26,099
Growth and Income Portfolio
12/31/94 14.58 0.66 (1.96) (1.30) (0.52) (1.20) 11.56 (9.7) 34,995
12/31/95 11.56 0.61 1.29 1.90 (0.83) (0.62) 12.01 16.6 32,008
12/31/96++ 12.01 0.33 2.02 2.35 (0.77) -- 13.59 20.2 33,465
12/31/97 13.59 0.15 3.74 3.89 (0.34) -- 17.14 28.8 44,417
12/31/98 17.14 0.14 4.80 4.94 (0.17) (0.80) 21.11 30.2 52,190
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME PORTFOLIO
PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED NET ASSETS NET ASSETS RATE
<S> <C> <C> <C>
Money Market Portfolio
12/31/94 0.6% 3.8% --%
12/31/95 0.6 5.5 --
12/31/96 0.6 4.9 --
12/31/97 0.6 5.0 --
12/31/98 0.6(1) 5.0 --
Fixed Income Portfolio
12/31/94 0.8 6.5 56.5
12/31/95 0.8 6.5 76.7
12/31/96 0.8 6.8 77.9
12/31/97 0.9 6.9 58.0
12/31/98 1.0(1) 6.7 32.5
Government & Quality Bond Portfolio
12/31/94 0.7 6.4 117.6
12/31/95 0.7 6.5 135.2
12/31/96 0.7 6.3 106.7
12/31/97 0.7 6.1 75.7
12/31/98 0.7(1) 5.5 150.2
High Yield Portfolio
12/31/94 0.9 9.0 97.9
12/31/95 0.9 9.2 68.1
12/31/96 0.9 8.8 58.0
12/31/97 0.9 8.8 101.4
12/31/98 0.9(1) 9.0 109.6
Growth and Income Portfolio
12/31/94 0.9 4.9 50.7
12/31/95 0.9 5.2 88.8
12/31/96 0.9 2.5 108.5
12/31/97 0.8 1.0 49.4
12/31/98 0.8(1) 0.7 41.0
</TABLE>
- ---------------
* Selected data for a share of beneficial interest outstanding throughout each
period (calculated based upon average shares outstanding)
** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company, First SunAmerica Life Insurance Company,
Phoenix Mutual Life Insurance Company and Presidential Life Insurance
Company. If such expenses had been included, total return would have been
lower for each period presented.
++ Prior to March 1, 1996, the portfolio was invested primarily in convertible
debt securities. After that date, the portfolio primarily invests in common
stock.
(1) The expense ratio reflects the effect of a gross up of custody expense
credits.
36
<PAGE> 38
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET DIVIDENDS DIVIDENDS
REALIZED TOTAL DECLARED FROM NET NET
NET ASSET NET & UNREALIZED FROM FROM NET REALIZED NET ASSET ASSETS
VALUE INVESTMENT GAIN (LOSS) INVEST- INVEST- GAIN ON VALUE END OF
PERIOD BEGINNING INCOME ON MENT MENT INVEST- END OF TOTAL PERIOD
ENDED OF PERIOD (LOSS)* INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN** (000'S)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Foreign Securities Portfolio
12/31/94 $10.93 $ 0.11 $(0.46) $(0.35) $(0.03) $ -- $10.55 (3.2)% $ 68,641
12/31/95 10.55 0.13 1.19 1.32 (0.05) (0.01) 11.81 12.6 53,609
12/31/96 11.81 0.15 1.19 1.34 (0.21) -- 12.94 11.5 48,036
12/31/97 12.94 0.11 (0.14) (0.03) (0.31) (1.20) 11.40 (1.0) 36,148
12/31/98 11.40 0.06 0.92 0.98 (0.21) (1.48) 10.69 10.7 29,701
Growth Portfolio
12/31/94 22.32 0.05 (1.03) (0.98) (0.05) (3.11) 18.18 (4.7) 246,149
12/31/95 18.18 0.11 4.62 4.73 (0.05) (3.38) 19.48 26.3 307,857
12/31/96 19.48 0.20 4.57 4.77 (0.11) (0.95) 23.19 25.0 366,602
12/31/97 23.19 0.16 6.76 6.92 (0.20) (2.87) 27.04 30.4 485,528
12/31/98 27.04 0.11 7.19 7.30 (0.14) (1.68) 32.52 29.0 669,330
Capital Appreciation Portfolio
12/31/94 20.28 (0.02) (0.71) (0.73) -- (2.04) 17.51 (3.8) 229,544
12/31/95 17.51 0.06 6.00 6.06 (0.15) (0.20) 23.22 34.6 356,218
12/31/96 23.22 0.06 5.73 5.79 (0.06) (0.95) 28.00 25.1 567,672
12/31/97 28.00 0.02 7.05 7.07 (0.05) (2.81) 32.21 25.4 814,311
12/31/98 32.21 0.04 6.24 6.28 (0.02) (2.88) 35.59 22.2 1,100,646
Natural Resources Portfolio
12/31/94 13.33 0.23 (0.09) 0.14 (0.09) (0.09) 13.29 1.0 21,230
12/31/95 13.29 0.18 2.15 2.33 (0.21) (0.29) 15.12 17.5 28,941
12/31/96 15.12 0.22 1.89 2.11 (0.13) (0.23) 16.87 14.1 45,329
12/31/97 16.87 0.20 (1.49) (1.29) (0.17) (0.99) 14.42 (8.6) 50,054
12/31/98 14.42 0.21 (2.72) (2.51) (0.19) (0.13) 11.59 (17.3) 39,299
Multi-Asset Portfolio
12/31/94 13.88 0.39 (0.60) (0.21) (0.47) (1.49) 11.71 (1.7) 164,159
12/31/95 11.71 0.40 2.47 2.87 (0.49) (1.05) 13.04 24.9 168,243
12/31/96 13.04 0.35 1.36 1.71 (0.49) (0.91) 13.35 13.9 150,619
12/31/97 13.35 0.34 2.36 2.70 (0.43) (2.10) 13.52 21.1 145,685
12/31/98 13.52 0.30 2.56 2.86 (0.40) (2.49) 13.49 24.5 146,712
Strategic Multi-Asset Portfolio
12/31/94 14.06 0.24 (0.53) (0.29) (0.20) (2.28) 11.29 (2.6) 65,357
12/31/95 11.29 0.32 2.18 2.50 (0.23) (1.78) 11.78 22.8 64,026
12/31/96 11.78 0.25 1.41 1.66 (0.40) (0.84) 12.20 14.8 57,744
12/31/97 12.20 0.23 1.48 1.71 (0.31) (2.32) 11.28 14.3 53,289
12/31/98 11.28 0.23 1.13 1.36 (0.26) (1.92) 10.46 15.2 49,254
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME (LOSS) PORTFOLIO
PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED NET ASSETS NET ASSETS RATE
<S> <C> <C> <C>
- ----------------------------------------------------------
Foreign Securities Portfolio
12/31/94 1.2% 1.0% 73.9%
12/31/95 1.2 1.2 33.0
12/31/96 1.4 1.2 74.3
12/31/97 1.4 0.9 79.9
Growth Portfolio
12/31/98 1.5(1) 0.5 140.0
12/31/94 0.8 0.2 74.8
12/31/95 0.9 0.6 92.1
12/31/96 0.8 0.9 51.7
12/31/97 0.8 0.6 32.2
12/31/98 0.8(1) 0.4 27.1
Capital Appreciation Portfolio
12/31/94 0.8 (0.1) 64.0
12/31/95 0.8 0.3 60.1
12/31/96 0.8 0.2 69.2
12/31/97 0.7 0.1 60.1
12/31/98 0.7(1) 0.1 59.6
Natural Resources Portfolio
12/31/94 1.0 1.7 36.0
12/31/95 1.0 1.3 32.0
12/31/96 0.9 1.3 52.5
12/31/97 0.9 1.2 27.9
12/31/98 0.9(1) 1.6 51.2
Multi-Asset Portfolio
12/31/94 1.1 3.0 82.5
12/31/95 1.1 3.2 85.9
12/31/96 1.1 2.6 64.1
12/31/97 1.1 2.4 56.5
12/31/98 1.1(1) 2.2 51.1
Strategic Multi-Asset Portfolio
12/31/94 1.3 1.8 63.7
12/31/95 1.3 2.7 36.9
12/31/96 1.4 2.0 51.3
12/31/97 1.4 1.8 59.7
12/31/98 1.5(1) 2.0 157.1
</TABLE>
- ---------------
* Selected data for a share of beneficial interest outstanding throughout each
period (calculated based upon average shares outstanding)
** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company, First SunAmerica Life Insurance Company,
Phoenix Mutual Life Insurance Company and Presidential Life Insurance
Company. If such expenses had been included, total return would have been
lower for each period presented.
(1) The expense ratio reflects the effect of a gross up of custody expense
credits.
37
<PAGE> 39
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
The following documents contain more information about the Portfolios and are
available free of charge upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Contain financial statements, performance
data and information on portfolio holdings. The annual report also
contains a written analysis of market conditions and investment
strategies that significantly affected a Portfolio's performance for the
most recently completed fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains additional
information about the Portfolios' policies, investment restrictions and
business structure. This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the Portfolios
by contacting:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
1-800-445-7862
-- or --
First SunAmerica Life Insurance Company
Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
1-800-99-NYSUN (New York Shareholders)
1-800-445-SUN2 (all others)
Information about the Portfolios (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call (800) SEC-0330 for information on the operation of the
Public Reference Room. Information about the Portfolios is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by writing the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
[ANCHOR NATIONAL LOGO]
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
First SunAmerica Life Insurance Company
733 Third Avenue
New York, New York 10017
INVESTMENT COMPANY ACT
- - File No. 811-3836
38
<PAGE> 40
STATEMENT OF ADDITIONAL INFORMATION
ANCHOR SERIES TRUST
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the current Prospectus of Anchor Series Trust (the
"Trust") dated March 30, 1999. This Statement of Additional Information
incorporates the Prospectus by reference. Capitalized terms used herein but
not defined have the meanings assigned to them in the Prospectus. The Trust's
audited financial statements are incorporated into this Statement of Additional
Information by reference to its 1998 annual report to shareholders. You may
request a copy of the annual report and/or prospectus at no charge by calling
(800) 445-7862, or writing the Trust at the address below. The Prospectus may
be obtained without charge by writing to the Trust at the address below.
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
(800) 445-SUN2.
DATED: March 30, 1999
</R
<PAGE> 41
TABLE OF CONTENTS
Page
THE TRUST................................................................ B-4
INVESTMENT OBJECTIVES AND POLICIES....................................... B-4
Objectives....................................................... B-4
Growth and Income Portfolio...................................... B-4
Growth Portfolio................................................. B-5
Capital Appreciation Portfolio................................... B-5
Foreign Securities Portfolio..................................... B-6
Natural Resources Portfolio...................................... B-6
Multi-Asset Portfolio............................................ B-7
Strategic Multi-Asset Portfolio.................................. B-8
Money Market Portfolio........................................... B-9
Government and Quality Bond Portfolio............................ B-10
Fixed Income Portfolio........................................... B-10
High Yield Portfolio............................................. B-11
Foreign Money Market Instruments................................. B-11
Variable and Floating Rate Instruments........................... B-12
Government Obligations........................................... B-12
When-Issued Securities........................................... B-15
Short-term Investments........................................... B-14
Illiquid Securities.............................................. B-15
Foreign Securities............................................... B-16
Call and Put Options on Securities............................... B-17
Absence of Liquid Secondary Options Market....................... B-19
Natural Resources................................................ B-20
Regulation of Futures Contracts and Options Thereon.............. B-20
Special Risks of Options and Futures............................. B-21
Futures Contracts on Fixed Income
Securities - Characteristics and Risks.................... B-21
Options on Fixed Income Futures Contracts........................ B-24
Forward Commitments.............................................. B-25
Warrants......................................................... B-26
Stock Index Futures and Options Thereon.......................... B-26
Stock Index Futures Characteristics and Risks.................... B-26
Options on Stock Index Futures and Risks......................... B-29
Limitations on Stock Index Futures and Related
Options Transactions...................................... B-30
Foreign Currency Exchange Transactions........................... B-31
Options on Foreign Currencies ................................... B-33
Futures Contracts on Foreign Currencies.......................... B-34
Additional Risks of Options on Foreign Currencies,
Forward Contracts and Futures Contracts on
Foreign Currencies ....................................... B-34
Loans of Portfolio Securities.................................... B-36
Interest-Rate Swap Transactions ................................. B-36
Fixed Income Securities.......................................... B-37
Discount Bonds, Convertible Bonds and Preferred Stocks........... B-38
Certain Risk Factors Relating to High-Yield
(High-Risk) Bonds......................................... B-38
Sensitivity to Interest Rate and Economic Changes......... B-38
Payment Expectations...................................... B-39
Liquidity and Valuation................................... B-39
Investment Vehicles Designed to Track an Index .................. B-39
INVESTMENT RESTRICTIONS.................................................. B-40
SUNAMERICA ASSET MANAGEMENT CORP......................................... B-42
Advisory Fees.................................................... B-45
Personal Securities Trading...................................... B-45
WELLINGTON MANAGEMENT COMPANY............................................ B-46
Subadvisory Fees................................................. B-46
OFFICERS AND TRUSTEES OF THE TRUST....................................... B-47
COMPENSATION TABLE....................................................... B-51
CUSTODIAN................................................................ B-51
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL ............................... B-51
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................... B-51
1998 Brokerage Commissions............................................... B-53
1997 Brokerage Commissions............................................... B-54
1996 Brokerage Commissions............................................... B-54
B-2
<PAGE> 42
NET ASSET VALUE.......................................................... B-55
Foreign Securities Portfolio..................................... B-55
Money Market Portfolio........................................... B-56
DIVIDENDS, DISTRIBUTIONS AND TAXES....................................... B-57
SPECIAL CONSIDERATIONS................................................... B-58
GENERAL INFORMATION...................................................... B-58
OWNERSHIP OF SHARES...................................................... B-59
FINANCIAL STATEMENTS..................................................... B-59
APPENDIX................................................................. B-60
B-3
<PAGE> 43
THE TRUST
The Trust, organized as a Massachusetts business trust on August 26,
1983, is an open-end management investment company. The Trust is composed of
eleven 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 "Account Information" 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. The Target 98
Portfolio ceased operations on December 11, 1998.
INVESTMENT OBJECTIVES AND POLICIES
OBJECTIVES
For a description of the objectives, or "goals," of each of the
Portfolios, see "More Information About the Portfolios" in the Prospectus. The
following information is provided for those investors wishing to have more
comprehensive information than that contained in the Prospectus. Unless
otherwise specified, each Portfolio may invest in the following securities. The
stated percentage limitations are applied to an investment at the time of
purchase unless indicated otherwise.
GROWTH AND INCOME PORTFOLIO
The investment objective of the Growth and Income Portfolio is to
provide high current income and long-term capital appreciation. Under normal
circumstances, the Portfolio seeks to achieve its investment objective by
investing primarily in equity securities that provide the potential for growth
and offer income, such as dividend-paying stocks. Historically, a significant
portion of the return on common stocks has come from the income paid and the
reinvestment of that income. The dividend a stock pays has also provided some
cushion during periods of stock market volatility. As a result, the Portfolio
applies a conservative, long-term approach to stock selection, combining
top-down sector analysis with bottom-up security selection based on fundamental
research.
The Portfolio may 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. The Portfolio anticipates
that the majority of its foreign investments will be in Depositary Receipts,
such as ADRs.
B-4
<PAGE> 44
GROWTH PORTFOLIO
The investment objective of the Growth Portfolio is capital
appreciation. Under normal circumstances, the Portfolio will invest primarily in
core equity securities that are widely diversified by industry and company. The
Portfolio invests predominantly in larger companies, but normally will also
invest in smaller companies. The Portfolio will be widely diversified by
industry and company. Equity securities selected for the Portfolio may possess
both growth and value style characteristics. The Portfolio is well diversified
and its investments are more broadly represented within each industry sector
than more concentrated portfolios which may take bigger industry bets. As a
result, the Portfolio should be viewed as a core U.S. equity portfolio. The
Portfolio favors stocks of seasoned companies with proven records and
above-average earnings growth, and stocks of smaller companies with outstanding
growth records and potential.
The Portfolio may also invest up to 25% of its assets in foreign
securities. This includes direct investments through purchases in foreign
markets, as well as indirect investments through purchases of Depositary
Receipts, such as ADRs.
CAPITAL APPRECIATION PORTFOLIO
The investment objective of the Capital Appreciation Portfolio is
long-term capital appreciation. Under normal circumstances, the Portfolio
invests primarily in growth equity securities across a wide range of industries
and companies, using a wide ranging and flexible stock picking approach and may
be concentrated and will generally have less investments in large company
securities than the Growth Portfolio. The Portfolio may also invest in cash
equivalents and index futures. Up to 25% of the Portfolio's assets may be
invested in securities of foreign companies. This includes direct investments
through purchases in foreign markets, as well as indirect investments through
purchases of Depositary Receipts, such as ADRs.
The Portfolio follows a dynamic investment approach. Investments will
be selected from a broad universe of securities on the basis of the
Subadviser's assessment of the potential for capital appreciation. As a result,
investments used in the future may be different from those used today. In
addition, investors should expect the Portfolio's focus on particular companies,
industries, countries, styles and market capitalizations to vary as a result of
new and changing investment opportunities and the Subadviser's stock selection
process. Because large positions may be taken, the risk of the portfolio manager
being wrong is larger than in an index fund or some other more passive
investment.
The Portfolio favors stocks of smaller companies which may be newer and
less seasoned, stocks of companies in new or changing industries, and stocks
with greater potential for future appreciation in value - including under-valued
or low-priced securities.
B-5
<PAGE> 45
FOREIGN SECURITIES PORTFOLIO
The investment objective of the Foreign Securities Portfolio is
long-term capital appreciation. The Portfolio invests in core equity securities
issued by foreign companies and opportunistically invests in emerging markets
and smaller companies. Diversification can be a benefit or a detriment to
Portfolio performance. Generally, diversification helps reduce the volatility or
variability of the Portfolio's returns relative to another portfolio which
invests in fewer stocks or whose investments are focused in fewer countries or
industry sectors.
The Portfolio invests primarily in stock of companies which are
considered large to medium-sized (measured by market capitalization) in the
markets where these investments trade. The Portfolio may also invest in smaller
companies when management views them as attractive alternatives to the stocks of
larger or more established companies. The Portfolio will make direct investments
in foreign equities by purchasing stocks in foreign markets, as well as indirect
investments in foreign equities through purchases of Depositary Receipts, such
as ADRs.
The Portfolio invest primarily in stocks which trade in larger or more
established markets, but may also invest (to a lesser degree) in smaller,
less-developed or emerging markets, where management believes there is
significant opportunity for growth of capital. The definition of "emerging
markets" may change over time as a result of development in national or regional
economies and capital markets. Within emerging market investments, the Portfolio
seeks to participate in the more established markets which management believes
provide sufficient liquidity.
At present, the Portfolio's investment strategy focuses on large
capitalization, high quality companies issued in developed stock markets around
the world. However, the Portfolio follows a dynamic investment approach, and in
the future the Portfolio's investment strategy may change to accommodate future
market conditions. For example, the Portfolio could invest more in less
established companies or markets. In addition, the combination of investments in
a diversified portfolio such as the Portfolio may react to world economic and
political events in unexpected ways. There is no guarantee that the Portfolio
will meet its investment objectives.
NATURAL RESOURCES PORTFOLIO
The investment objective of the Natural Resources Portfolio is to
provide total return in excess of the U.S. rate of inflation as represented by
the Consumer Price Index. The Portfolio invests using a value approach primarily
in equity securities of U.S. or foreign companies that are expected to provide
favorable returns in periods of rising inflation, at least 65% related to
natural resources, such as energy, metals, mining and forest products.
The Portfolio invests in four principal areas:
- Energy. The energy sector includes companies engaged in
exploration, extraction, servicing, processing, distribution and
transportation of oil, natural gas and other energy sources.
B-6
<PAGE> 46
- Metals and mining. The metals and mining sector includes
companies engaged in exploration, mining, processing,
fabrication, marketing or distribution of precious and
non-precious metals and minerals.
- Forest products. The forest product sector includes timber, pulp
and paper product companies.
- Other natural resources. Other natural resource-based companies,
including companies engaged in real estate and the production,
processing and distribution of agricultural products, fertilizer
and miscellaneous raw materials.
Under normal circumstances, the Portfolio will invest principally in
equity securities. The Portfolio will invest in domestic securities as well as
foreign securities. The Portfolio will make direct investments in foreign
equities by purchasing stock in foreign markets, as well as indirect investments
in foreign equities through purchases of Depositary Receipts, such as ADRs.
MULTI-ASSET PORTFOLIO
The investment objective of the Multi-Asset Portfolio is to seek
long-term total investment return consistent with moderate investment risk.
Total return consists of any income (such as dividends and interest) plus any
capital gains and losses from the Portfolio's investments. The Portfolio
actively allocates the Portfolio's assets among equity securities, investment
grade fixed income securities and cash with less risk than the Strategic
Multi-Asset Portfolio. Currently the Portfolio is invested more in stocks than
in fixed income securities. This may change over time in response to the
Subadviser's outlook on the return potential of stocks, bonds and cash. The
Subadviser allocates the assets of the Portfolio among the following
sub-Portfolios:
- Core Equity Sub-Portfolio - The Core Equity Sub-Portfolio invests
primarily in securities that provide the potential for growth and
offer income. The Sub-Portfolio generally invests in U.S. common
stocks that pay a dividend. Historically, a significant portion
of the return on common stocks has come from the income paid and
the reinvestment of that income. The dividend a stock pays has
also provided some cushion during period of stock market
volatility. As a result, the Sub-Portfolio applies a
conservative, long-term approach to stock selection, combining
top-down sector analysis with bottom-up security selection based
on fundamental research.
- Core Bond Sub-Portfolio - The Core Bond Sub-Portfolio invests
primarily in "investment-grade" bonds and other fixed income
securities. Investment grade securities are those rated at the
time of purchase "Baa" or better by Moody's or "BBB" or better by
S&P or unrated securities that are deemed to be of comparable
quality by the Subadviser. These securities may be issued in the
U.S. or abroad, but generally will be denominated in U.S.
dollars.
B-7
<PAGE> 47
STRATEGIC MULTI-ASSET PORTFOLIO
The investment objective of the Strategic Multi-Asset Portfolio is
high long-term total investment return. Total return consists of any income
(such as dividends and interest) plus any capital gains and losses from the
Portfolio's investments. The Portfolio actively allocates the Portfolio's assets
among equity securities of U.S. and foreign companies, medium and small company
equity securities, global fixed income securities (including high-yield,
high-risk bonds) and cash with more risk than the Multi-Asset Portfolio.
Investments in fixed income securities may include "high yield/high risk"
securities or "junk bonds" issued in the U.S. or abroad. Investments in common
stocks include investments in smaller companies as well as non-U.S. stocks. The
ratio of stocks to bonds is currently weighted more towards stocks than in the
case of the Multi-Asset Portfolio. This may change over time in response to the
Subadviser's outlook on the return potential of stocks, bonds and cash. The
Subadviser's management team meets frequently, and a high level of integration
exists in the decision-making between the managers of the Sub-Portfolios. Each
sub-Portfolio is more highly concentrated than a stand-alone version would be in
recognition of the diversification already present in the total Portfolio. The
Sub-Advisor allocates the assets of the Portfolio among the following
sub-Portfolios:
- Global Core Equity Sub-Portfolio- The Global Core Equity
Sub-Portfolio invests in common stocks of a highly diversified
group of companies and industries world-wide. The Sub-Portfolio
invests primarily in stocks of companies which are considered
large to medium-sized (measured by market capitalization) in the
markets where these investments trade. The Sub-Portfolio may
also invest in smaller companies when management views them as
attractive alternatives to the stocks of large or more
established companies. The Sub-Portfolio will make direct
investments in foreign equities by purchasing stocks in foreign
markets, as well as indirect investments in foreign equities
through purchases of Depositary receipts, such as ADRS. The Sub-
Portfolio invests primarily in stocks which trade in larger or
more established markets, but may also invest (to a lesser
degree) in smaller, less-developed or emerging markets, where
management believes there is significant opportunity for growth
of capital. The definition of "emerging markets" may change over
time as a result of development in national or regional
economies and capital markets. Within emerging market
investments, the Sub-Portfolio seeks to participate in the more
established markets which management believes provide sufficient
liquidity.
- Global Core Bond Plus Sub-Portfolio - The Global Core Bond Plus
Sub-Portfolio seeks a high level of current income by investing
in a diverse group of fixed income securities issued by U.S. and
foreign companies, foreign governments (including their agencies
and instrumentalities), and supranational agencies (such as the
World Bank, European Investment Bank and European Bank for
Reconstruction and Development). The Sub-Portfolio may invest in
"investment-grade" bonds and other fixed income securities.
Investment grade securities are those rated at the time of
purchase "Baa" or better by Moody's or "BBB" or better by S&P,
or unrated securities that are deemed to be of comparable
quality by the Subadviser. The Sub-Portfolio may also invest in
securities rated at the time of purchase below "Baa" by Moody's
or "BBB"
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by S&P, commonly referred to as "junk bonds" or "high yield/high
risk" securities, or in unrated securities that are of
comparable quality as determined by the Subadviser.
- Capital Appreciation Sub-Portfolio - The Capital Appreciation
Sub-Portfolio seeks long term capital appreciation by investing
in a widely diversified portfolio of growth equity securities.
The Sub-Portfolio invests in substantially the same securities
as the Capital Appreciation Portfolio.
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is current income
consistent with stability of principal.
The Portfolio will comply with the rules and regulations of the
Securities and Exchange Commission ("SEC") applicable to money market funds.
These regulations impose certain quality, maturity and diversification
guidelines on investments of the Portfolio. As a result, the Portfolio invests
in a diversified portfolio of money market instruments maturing in 397 days or
less and maintains a dollar-weighted average portfolio maturity of not more
than 90 days.
The Portfolio will be reinvested in obligations denominated in U.S.
dollars which at the time of purchase are "eligible securities" as defined by
the SEC. Under SEC regulations, an eligible security generally is an instrument
that is rated in the highest rating category for short-term debt obligations, or
unrated security which is determined by the Subadviser to be of comparable
quality.
Eligible securities may include:
- Commercial paper and other short-term obligations of U.S. and
foreign corporations.
- Certificates of deposit, time deposits, bank notes, bankers'
acceptances and other obligations 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.
- Obligations issued or guaranteed as to principal and interest by
the U.S. government or its agencies or instrumentalities.
- Short-term obligations issued by state and local governments.
- Obligations of foreign governments, including Canadian and
Provincial Government and Crown Agency Obligations.
- Asset-backed securities and other interests in special purpose
trusts designed to meet the quality and maturity requirements
applicable to eligible securities.
- Repurchase agreements.
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GOVERNMENT AND QUALITY BOND PORTFOLIO
The investment objective of the Government and Quality Bond Portfolio is
relatively high current income, liquidity and security of principal. Under
normal circumstances, the Portfolio will invest in obligations issued,
guaranteed or insured by the U.S. government, its agencies or instrumentalities
and in high quality corporate fixed income securities.
The Portfolio will invest at least 80% of its total assets in government
securities and high quality corporate bonds. In addition, up to 20% of the
Portfolio may be invested in bonds rated as low as "A" by Moody's or S&P, or
unrated securities that are deemed to be of comparable quality by the
Subadviser. At present, the Portfolio expects to invest a majority of its
assets in government securities.
The Portfolios will invest a significant portion of its assets in
mortgage-backed securities, including those known as "Ginnie Maes" or GNMA
securities and collateralized mortgage obligations or CMOs, which represent a
participation in the principal and interest payments arising from a pool of
residential mortgages.
FIXED INCOME PORTFOLIO
The investment objective of the Fixed Income Portfolio is to seek a high
level of current income consistent with preservation of capital. Under normal
circumstances, the Portfolio will invest primarily in investment grade bonds
and other fixed income securities.
The Portfolio may also invest up to 20% of its total assets in
securities rated below "Baa" by Moody's or "BBB" by S&P, commonly referred to as
"junk bonds" or "high yield/high risk" securities, or in unused securities that
are deemed to be of comparable quality by the Subadviser. Presently, the
Subadviser intends to take advantage of the Portfolio's capacity to invest in
high yield/high risk securities.
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HIGH YIELD PORTFOLIO
The primary investment objective of the High Yield Portfolio is to
produce high current income. A secondary investment objective is capital
appreciation. Under normal circumstances, the Portfolio will invest in
high-yielding, high-risk, income producing bonds, also known as "junk bonds,"
and other fixed income securities. The Portfolio will also invest in unrated
securities that are of comparable quality as determined by the Subadviser. The
Portfolio generally invests in: (a) high yield/high risk bonds and other debt
obligations; and (b) convertible securities, such as preferred stocks that may
be converted into common stocks or other equity interests. The Portfolio's
investments may be issued by: U.S. and foreign companies; foreign governments
and their agencies and instrumentalities; and supranational agencies.
To reduce the risk of loss from credit deterioration, the Portfolio
will be broadly diversified by region, industry and issuer. Sector and quality
weightings, as well as individual holdings, will vary and depend upon relative
valuations. The average maturity of the Portfolio will generally range from 7 to
12 years. In contrast to investment-grade securities, the prices of high yield
securities are less sensitive to interest rate movements and more sensitive to
the underlying credit quality of the issuer. Consequently, the maturity
structure of the Portfolio will tend to be a by-product of security selection
rather than interest rate anticipation.
The Portfolio may invest without limit in unrated securities, if the
Subadviser believes that such securities offer a relatively high yield without
undue risk.
High yield/high risk securities generally have higher yields than
higher-rated, investment-grade rated securities of the same maturity. However,
if the yield difference between lower-rated and higher-rated securities narrows,
the Portfolio may purchase higher-rated securities. The Portfolio generally will
purchaser higher-rated securities only if the Subadviser believes that yield
will not decrease significantly as a result of such investment. However, the
Portfolio may also need to purchase higher-rated securities to maintain the
liquidity necessary to meet redemption requests from its shareholders.
A significant portion of the Portfolio's investments are purchased and
sold in large institutional markets. Many of these transactions are exempted
from the registration requirements of the securities laws pursuant to Rule 144A
of the Securities Act of 1933, as amended (the "Securities Act"). While many of
these so-called "Rule 144A securities" are considered liquid, the liquidity of
these investments may be affected by the actions of a few institutional
investors.
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
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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.
Investment risks associated with investments in obligations of foreign
branches of U.S. banks, London and U.S. branches of foreign banks, short-term
obligations 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
The Portfolios of the Trust may purchase variable or floating rate
instruments which include a demand feature, such as variable amount master
demand notes. Variable or floating rate instruments bear interest at a rate that
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 investments for the Money Market Portfolio. The
Subadviser 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 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
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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 ("GNMA"), Maritime Administration, Small Business Administration and
the Tennessee Valley Authority. As noted in the Prospectus, certain 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.
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 (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 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.
WHEN-ISSUED SECURITIES
Each 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
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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
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. 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.
SHORT-TERM INVESTMENTS
Although the Money Market 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,"
below.) 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
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of return insulated from market fluctuations during such period. Under the
Investment Company Act of 1940, as amended, (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. 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 (100% if such collateral is in the form of cash).
Such collateral will be cash or 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 its net assets
(except that the Government and Quality Bond, Fixed Income and High Yield
Portfolios may invest up to 15%), 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; 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.
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In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act for which there is a readily available market will not be
deemed to be illiquid. The Portfolios' Subadviser 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 Subadviser 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).
Each of the Portfolios may invest in commercial paper issued in reliance
on the so-called private placement exemption from registration afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper 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 Multi-Asset, Strategic
Multi-Asset and Money Market 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.
FOREIGN SECURITIES
The Growth and Income, Growth, Capital Appreciation, Foreign Securities,
Natural Resources, Multi-Asset, Strategic Multi-Asset, Government and Quality
Bond and Fixed Income Portfolios may invest in foreign debt and equity
securities. The High Yield Portfolio 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,
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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
Each Portfolio other than the Money Market Portfolio may purchase call
and put options on securities or financial indices to enhance income or hedge
its Portfolio. These options may be on securities, aggregates of securities,
financial indices (i.e., the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500 Index")) and U.S. government securities and may be either
exchange-traded or over-the-counter ("OTC"). The purpose of these investments is
to gain market exposure with limited loss potential. These Portfolios may sell
("write") covered call options to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the securities alone. It is
anticipated that the maximum percentage of the Portfolios' securities subject to
options primarily for income purposes will be 30%, that the maximum percentage
in options 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
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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. Therefore, if the Portfolio sells puts, it might 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, 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. 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 executed. Executing 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
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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 a market 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
will exist for any particular option, or at any particular time, and for some
options no secondary market 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 "Absence of Liquid Secondary Options Market," below, for reasons
why a liquid secondary options market may not exist.
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. The reason for
this illiquidity will be market stress, not regulatory as in the case of listed
options.
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NATURAL RESOURCES
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 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 Subadviser 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
Subadviser will seek securities that are attractively priced relative to the
intrinsic value of the relevant natural resource, or that are of companies
positioned to benefit during particular portions of the inflationary cycle.
It is expected that the market price of securities that are tied into
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.
REGULATION OF FUTURES CONTRACTS AND OPTIONS THEREON
Each Portfolio (other than the Money Market Portfolio) may purchase and
sell financial futures contracts and options thereon that 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 ("CFTC"). 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
that are linked to the London Interbank Offered Rate (LIBOR).
The use of exchange traded futures contracts and options thereon by the
Portfolios is subject to regulation by various governmental bodies, including
the SEC and the 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. The
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over-the-counter derivatives markets have no direct regulation. The regulators
are involved in these markets as part of their oversight of the entities that
are dealing in the OTC derivatives markets. For example, the SEC regulates the
dealer community, and in general, the banks acting as counterparties are
regulated by the Office of the Comptroller of the Currency.
SPECIAL RISKS OF OPTIONS AND FUTURES
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 the Subadviser'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 than 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
Subadviser'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; and (5) 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.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES - CHARACTERISTICS AND RISKS
Each Portfolio (other than the Money Market Portfolio) may enter into
contracts ("Futures Contracts") for the future delivery of fixed income
securities. (See "Fixed Income Securities" below.) This investment technique
will be used to hedge (e.g., 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 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 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 Futures Contract may not have been issued at the time the
contract was written. Each Portfolio may also use fixed income futures to adjust
currency exposure.
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
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 the margin requirement specified by the
futures
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counterparty. 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 that
is returned to the Portfolio upon termination of the Futures Contract assuming
all contractual obligations have been satisfied. The Portfolio will be required
to make funds available at the custodian to satisfy any margin calls due to
adverse market moves. 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 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 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 Futures Contract the
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 Futures Contracts
by a Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the Futures Contract and movements
in the price of the securities that are the subject of the hedge. The price of
the Futures Contract may move more than or less than the price of the securities
being hedged. If the price of the Futures Contract moves less than the price of
the securities that 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 Futures Contracts if the historical volatility of the
price of the 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.
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Although 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 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 Futures Contracts in anticipation of a
significant market advance (for example due to a decline in interest rates). The
purchase of a 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 Futures Contracts
would be terminated by offsetting sales. Similarly, 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 Futures Contracts would be sold.
A Portfolio may sell 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 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 Futures
Contracts would be terminated.
A Portfolio will incur brokerage fees when it purchases or sells Futures
Contracts, and it will be required to maintain margin deposits. In addition,
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 Futures
Contracts to protect against cash market price volatility is the prospect that
futures prices will correlate imperfectly with the behavior of cash prices.
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
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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 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 exposure 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 liquid securities in an amount that will cover obligations
with respect to Futures Contracts.
OPTIONS ON FIXED INCOME FUTURES CONTRACTS
Each Portfolio (other than the Money Market Portfolio) may purchase and
write options on Fixed Income Futures Contracts that are traded on an exchange
in order to hedge against adverse price movements and may enter into closing
transactions with respect to such options to terminate an existing position. An
option on a Fixed Income Futures Contract gives the purchaser the right, in
return for the premium paid, to assume a position in a Fixed Income Futures
Contract (a long position if the option is a call and a short position if the
option is a 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 Fixed Income 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 Fixed Income
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 Fixed Income 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.
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The purchase of a call option on a Fixed Income 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 Fixed Income 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 Fixed Income
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 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 may 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 Fixed Income Futures Contracts on any exchange unless and
until, in the opinion of Wellington, the market for such options has developed
sufficiently that the risks in connection with options on Fixed Income Futures
Contract transactions are not greater than the risks in connection with Fixed
Income Futures Contract transactions. Compared to the use of Fixed Income
Futures Contracts, the purchase of options on Fixed Income 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 Fixed Income Futures Contract
would result in a loss to the Portfolio when the use of a Fixed Income Futures
Contract would not, such as when there is no movement in the level of interest
rates.
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 liquid securities 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
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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
the Portfolio or for delivery pursuant to options contracts it has entered into,
a Portfolio may dispose of a commitment prior to settlement if the Subadviser
deems it appropriate to do so. A Portfolio may realize short-term profits or
losses upon the sale of forward commitments.
WARRANTS
Each Portfolio (other than the Money Market Portfolio) may invest in
common stock warrants, which entitle the holder to buy common stock from the
issuer of the warrant at a specified price (the strike price) for a specified
period of time, or index warrants, which entitle the holder to receive a cash
payment from the issuer of the warrant based on the value of the underlying
index at the time of exercise. Common stock warrants generally do not entitle
the holder to dividends or voting rights with respect to the underlying common
stock and do not represent any rights in the assets of the issuer company. If a
Portfolio were not to exercise a warrant prior to its expiration, then the
Portfolio would lose the purchase price paid for the warrant.
A Portfolio will normally use warrants in a manner similar to its use of
options on securities or securities indices. The risk of a Portfolio's use of
warrants are generally similar to those relating to its use of options. Unlike
most options, however, warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the issuer of the warrant. Also, warrants generally have longer terms than index
options. Although a Portfolio will normally invest only in exchange-listed
warrants, warrants are not likely to be as liquid as certain options backed by a
recognized clearing agency. To the extent such an investment is deemed to be
illiquid by the Subadviser, it will be subject to the Portfolio's 10% limitation
on illiquid investments. In addition, the terms of 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 or as a substitute for purchasing or selling a
security position in accordance with the strategies more specifically described
below. Each of these Portfolios presently intends to limit use of stock index
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
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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 also use stock index futures to adjust
country exposure.
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 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, but not limited to, the Standard and
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. Index futures contracts
are also available on a number of foreign exchanges.
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 the margin
requirement specified by the futures counterparty. 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
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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 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 that will not be
completely offset by movements in the price of the securities that 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.
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
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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
In connection with the Portfolios' hedging strategies, each Portfolio
(other than the Money Market Portfolio) may purchase and write options on stock
index futures that 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 put options 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.
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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 that
provides a secondary market for such options. Although each 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 Wellington, 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
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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 exposure 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 or liquid
securities, 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 involve currencies of
foreign countries, and since assets of each Portfolio (other than the Money
Market Portfolio) 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 (e.g., 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
(e.g., 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 for the purpose of
adjusting country exposure as a part of an overall investment strategy as a
substitute for purchasing or selling a security, or to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the foreign currency during the period between the date a
foreign security is purchased or sold and the date on which payment is made or
received. Forward contracts may be utilized when the Subadviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar. In this case, it may enter into a forward contract to
sell, for a fixed
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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.
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 maintain, in a segregated
account, an amount of cash or liquid securities equal to the Portfolio's
commitments under forward contracts except to the extent they are otherwise
"covered." 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 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.
A Portfolio is 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 Subadviser. 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
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establishes a rate of exchange that 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 Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") and other forms of depositary
receipts for securities of foreign issuers provide an alternative method for the
Portfolios to make foreign investments. All or a portion of the foreign
securities purchased by a Portfolio may be in the form of such Depositary
Receipts and other similar global instruments. 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. EDRs are receipts issued in Europe,
typically by foreign banks and trust companies, and evidence ownership of either
foreign or domestic underlying securities.
OPTIONS ON FOREIGN CURRENCIES
Each Portfolio other than the Money Market Portfolio may purchase put
and call options on foreign currencies for defensive or hedging purposes. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, a Portfolio may
purchase put options on the foreign currency. If the value of the currency does
decline, a Portfolio will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the adverse
effect on its portfolio that otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options that would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
A Portfolio may also sell (write) covered call options on foreign
currencies for defensive or hedging purposes. For example, where the Portfolio
anticipates a decline in the dollar value of foreign currency denominated
securities due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected
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decline occurs, the option will most likely not be exercised, and the diminution
in value of portfolio securities will be offset by the amount of the premium
received. For a more general discussion regarding the opening and closing of
options positions and the risks of these transactions, see "Call and Put Options
on Securities" above.
A call option written on a foreign currency covered by the Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its Custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Portfolio in cash, U.S. government securities and other high quality liquid
debt securities in a segregated account with its Custodian.
As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Portfolio would be required to
purchase or sell the underlying currency at a loss which may not be offset by
the amount of the premium. Through the writing of options on foreign currencies,
a Portfolio also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements in exchange
rates.
FUTURES CONTRACTS ON FOREIGN CURRENCIES
Each Portfolio other than the Money Market Portfolio may enter into a
foreign currency futures contract to achieve the same objectives discussed above
with respect to currency forward contracts. A foreign currency futures contract
is an agreement pursuant to which one party agrees to make delivery, and the
other party agrees to accept delivery, of a currency at a specified price on a
specified date. Although such futures contracts by their terms call for actual
delivery or acceptance of a currency, in most cases the contracts are closed out
before their settlement date without the making or taking of delivery. For a
more general discussion regarding the opening and closing of futures contracts
positions and the risks of these transactions, see "Futures Contracts on Fixed
Income Securities- Characteristics and Risks" above.
ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD CONTRACTS AND FUTURES
CONTRACTS ON FOREIGN CURRENCIES.
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as
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the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject
to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over the counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency options exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
that may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
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In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
LOANS OF PORTFOLIO SECURITIES
The Growth and Income Portfolio may lend portfolio securities in amounts
up to 33% of total assets to brokers, dealers and other financial institutions,
provided, that such loans are callable at any time by the Portfolio and are at
all times secured by cash or equivalent collateral that is equal to at least the
market value, determined daily, of the loaned securities. In lending its
portfolio securities, the Portfolio receives income while retaining the
securities' potential for capital appreciation. The advantage of such loans is
that the Portfolio continues to receive the interest and dividends on the loaned
securities while at the same time earning interest on the collateral, which will
be invested in short-term obligations. A loan may be terminated by the borrower
on one business day's notice or by the Portfolio at any time. If the borrower
fails to maintain the requisite amount of collateral, the loan automatically
terminates, and the Portfolio could use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over
collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will be made only to firms deemed by the Subadviser to be
creditworthy. On termination of the loan, the borrower is required to return the
securities to the Portfolio; and any gain or loss in the market price of the
loaned security during the loan would inure to the Portfolio. The Portfolio will
pay reasonable finders', administrative and custodial fees in connection with a
loan of its securities or may share the interest earned on collateral with the
borrower.
Since voting or consent rights which accompany loaned securities pass to
the borrower, the Portfolio will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Portfolio's investment in
the securities which are the subject of the loan.
INTEREST-RATE SWAP TRANSACTIONS
The Foreign Securities Portfolio, Natural Resources Portfolio, Growth
and Income Portfolio, Strategic Multi-Asset Portfolio, Multi-Asset Portfolio,
High Yield Portfolio and Fixed Income 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
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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 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.
FIXED INCOME SECURITIES
Each Portfolio may invest, subject to the percentage and credit quality
limitations stated herein and in the Prospectus, in fixed income securities,
including corporate debt obligations issued by corporations and governments.
The convertible securities in which the Growth and Income 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 and Poor's
Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("Standard and
Poor's") (including convertible securities that have been downgraded), or in
unrated convertible securities that are of comparable quality as determined by
the Subadviser. Convertible securities rated lower than "Baa" by Moody's or
"BBB" by Standard and 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 below for a discussion of the risks associated with
lower-rated, high-yield securities.
The High Yield Portfolio will pursue its goal 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." The
Portfolio may invest, without limit, in unrated securities if such securities
offer, in the opinion of the Subadviser, 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 and Poor's) unless the Subadviser believes that the
potential total return of the instrument outweighs the increased credit risk as
noted by the distressed rating 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 Subadviser believes that
the risk of loss of income and principal may be substantially reduced with only
a relatively small reduction in yield.
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Consistent with the Fixed Income Portfolio's investment objective, the
Portfolio may have up to 20% of its assets invested in instruments that are not
investment grade, including preferred stocks, when individually attractive
yields offset lower credit quality.
The Strategic Multi-Asset Portfolio may invest in junk bonds.
Up to 20% of the Government and Quality Bond Portfolio may be invested
in bonds rated as low as "A" by Moody's or Standard and Poor's or, if not rated,
determined by the Subadviser to be of comparable quality.
The other Portfolios will not invest in junk bonds.
See the Appendix for a description of corporate bond and commercial
paper ratings.
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 that 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 that
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 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 Subadviser 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 "More Information About the Portfolios."
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
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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.
INVESTMENT VEHICLES DESIGNED TO TRACK AN INDEX
Consistent with its investment objectives and policies, a Portfolio may
purchase interests in certain investment vehicles designed to provide investment
results that correspond generally to the performance of a particular benchmark
index, such as the S&P 500 Index or a Morgan Stanley Capital International
Country Index. Each such investment vehicle invests substantially all of its
assets in a manner designed to reproduce the composition of its benchmark index,
that is, the investment vehicle tracks all of the securities composing the index
and reflects each security's weighting within the index. These investment
vehicles can provide exposure to a market segment or an entire foreign market
though a single investment. Some investment vehicles may be deemed private
investment companies exempt from registration under the 1940 Act pursuant to
Section 3(c)(7) thereof or may be registered under the 1940 Act. In either such
event, the Portfolio's investment would be subject to certain limitations
imposed by the 1940 Act. Interests in such investment vehicles may be purchased
in institutional resale transactions exempt from registration under the
Securities Act, pursuant to Rule 144A thereof, and may be considered illiquid
securities. As an interest holder of such investment vehicle, a Portfolio would
bear, along with other holders, its pro rata portion of the expenses of such
investment vehicle, including any administrative and custody expenses. These
expenses would be in addition to any expenses that a Portfolio bears directly in
connection with its own operations.
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INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions relating to the
investment of assets of the 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 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 eleven
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.
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.
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 Wellington or SunAmerica Asset
Management Corp, 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
that are secured by real estate and securities of companies that
invest or deal in real estate.
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<PAGE> 80
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 seven 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); (b) repurchase agreements
(subject to the limitation in paragraph 11 above); and (c) as
otherwise permitted by exemptive order of the SEC. The purchase
of a portion of an issue of securities described under (a) above
distributed publicly, whether or not the purchase 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. (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 and
B-41
<PAGE> 81
Income, Growth, Capital Appreciation, Natural Resources,
Multi-Asset, Strategic Multi-Asset, Fixed Income and High Yield
Portfolios.
SUNAMERICA ASSET MANAGEMENT CORP.
SunAmerica Asset Management Corp. ("SAAMCo"), The SunAmerica Center, 733
Third Avenue, New York, New York 10017-3204, has been retained pursuant to an
Investment Advisory and Management Agreement (the "Advisory Agreement") to
supervise the management and investment programs of the Portfolios of the Trust.
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 affiliated companies. SAAMCo also provides investment advice to
individual companies and clients. 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
Wellington. SAAMCo is a wholly-owned subsidiary of SunAmerica, Inc., which is a
wholly-owned subsidiary of American International Group, Inc. ("AIG"), the
leading U.S.-based international insurance organization.
AIG, a Delaware corporation, is a holding company that through its
subsidiaries is primarily engaged in a broad range of insurance and insurance
related activities and financial services in the United States and abroad. AIG,
through its subsidiaries, is also engaged in a range of financial services
activities. AIG's asset management operations are carried out primarily by AIG
Global Investment Group, Inc., a direct wholly owned subsidiary of AIG, and its
affiliates (collectively, "AIG Global"). AIG Global manages the investment
portfolios of various AIG subsidiaries, as well as third party assets, and is
responsible for product design and origination, marketing and distribution of
third party asset management products, including offshore and private
investment funds and direct investment. AIG Capital Management Corp., an
indirect wholly-owned subsidiary of AIG Global Investment Group, Inc., serves
as investment adviser to The AIG Money Market Fund, a separate series of The
Advisors' Inner Circle Fund, a registered investment company. In addition, AIG
Global Investment Corp., an AIG Global group company, serves as the
sub-investment adviser to an unaffiliated registered investment company. AIG
companies do not otherwise provide investment advice to any registered
investment companies.
The Advisory Agreement provides 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
B-42
<PAGE> 82
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
Agreement, 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 Wellington), 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 portfolio assets to
the total assets of the Trust, brokerage commissions or transaction costs, and
registration fees. Subject to supervision of the Board of Trustees, fees for
independent accountants, legal counsel, costs of reports of notices to
shareholders will be allocated based on the relative net assets of each
Portfolio. With respect to audit or legal fees clearly attributable to one
Portfolio, they will be assessed, subject to review by the Board of Trustees,
against that Portfolio.
The Advisory Agreement continues in effect from year to year, 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 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.
Under the terms of the Advisory Agreement, SAAMCo is not liable to the
Portfolios, or their shareholders, for any act or omission by it or for any
losses sustained by the Portfolios or their shareholders, except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
With respect to the investment advisory fees, SAAMCo has agreed 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 in effect):
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT
PORTFOLIO NET ASSETS FEE
- --------- --------------- -----------
<S> <C> <C>
Growth and Income $0-$100 million .700%
Greater Than $100 million .650%
</TABLE>
B-43
<PAGE> 83
<TABLE>
<S> <C> <C>
Greater Than $250 million .600%
Greater Than $500 million .575%
Growth $0-$250 million .750%
Greater Than $250 million .675%
Greater Than $500 million .600%
Capital Appreciation $0-$100 million .750%
Greater Than $100 million .675%
Greater Than $250 million .625%
Greater Than $500 million .600%
Foreign Securities $0-$100 million .900%
Greater Than $100 million .825%
Greater Than $250 million .750%
Greater Than $500 million .700%
Natural Resources Net Assets .750%
Multi-Asset,
Strategic Multi-Asset $0-$200 million 1.000%
Greater Than $200 million .875%
Greater Than $500 million .800%
Money Market $0-$150 million .500%
Greater Than $150 million .475%
Greater Than $250 million .450%
Greater Than $500 million .425%
Government & Quality Bond,
Fixed Income $0-$200 million .625%
Greater Than $200 million .575%
Greater Than $500 million .500%
High Yield $0-$250 million .700%
Greater Than $250 million .575%
Greater Than $500 million .500%
</TABLE>
The following table sets forth the total advisory fees earned by the
Adviser from each Portfolio pursuant to the Advisory Agreement for the fiscal
years ended December 31, 1998, 1997 and 1996.
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<PAGE> 84
ADVISORY FEES
<TABLE>
<CAPTION>
FUND 1998 1997 1996
---- ------------ ---------- ----------
<S> <C> <C> <C>
Growth and Income Portfolio $ 331,720 $ 280,911 $ 220,009
Growth Portfolio $3,948,827 $3,049,207 $2,393,836
Capital Appreciation Portfolio $5,750,603 $4,366,046 $3,030,849
Foreign Securities Portfolio $ 297,272 $ 404,182 $ 473,257
Natural Resources Portfolio $ 344,730 $ 380,856 $ 302,086
Multi-Asset Portfolio $1,457,255 $1,501,407 $1,569,359
Strategic Multi-Asset Portfolio $ 512,866 $ 563,207 $ 597,679
Money Market Portfolio $ 345,223 $ 383,800 $ 432,146
Government and Quality Bond Portfolio $1,819,571 $1,364,101 $1,392,653
Fixed Income Portfolio $ 110,791 $ 124,001 $ 152,430
High Yield Portfolio $ 226,072 $ 286,254 $ 313,621
</TABLE>
PERSONAL SECURITIES TRADING
The Trust and SAAMCo have adopted a written Code of Ethics (the "Code of
Ethics") which prescribes general rules of conduct and sets forth guidelines
with respect to personal securities trading by "Access Persons" thereof. An
Access Person as defined in the Code of Ethics is an individual who is a
trustee, director, officer, general partner or advisory person of the Trust or
the Adviser. The guidelines on personal securities trading include: (i)
securities being considered for purchase or sale, or purchased or sold, by any
Investment Company advised by the Adviser, (ii) Initial Public Offerings, (iii)
private placements, (iv) blackout periods, (v) short-term trading profits, (vi)
gifts, and (vii) services as a 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 Subadviser has adopted a written Code of Ethics, the
provisions of which are materially similar to those in the Adviser's Code of
Ethics, and has undertaken to comply with the provisions of the Adviser's Code
of Ethics to the extent such provisions are more restrictive. Further, the
Subadviser 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,
B-45
<PAGE> 85
the Adviser reports to the Board of Trustees as to whether there were any
violations of the Code of Ethics by Access Persons of the Trust or the Adviser.
WELLINGTON MANAGEMENT COMPANY
Wellington Management Company, LLP serves as Subadviser to all of the
Portfolios of the Trust, pursuant to the Subadvisory Agreement with SAAMCo (See
"Management" in the Prospectus for additional information concerning the
Subadviser.) Under the Subadvisory Agreement, the Subadviser manages the
investment and reinvestment of each of the Portfolios. The Subadviser is
independent of SAAMCo and discharges its responsibilities subject to the
policies of the Trustees and the oversight and supervision of SAAMCo, which pays
the Subadviser's fee. Wellington is a Massachusetts limited liability
partnership of which the following persons are managing partners: Robert W.
Doran, Duncan M. McFarland and John R. Ryan.
The Subadvisory Agreement continues in effect from year to year, 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 Subadvisory Agreement
provides that it will terminate in the event of an assignment (as defined in the
1940 Act) or upon termination of the Advisory Agreement. The Subadvisory
Agreement may be terminated at any time, without penalty, by the Trustees, by
the holders of a majority of the respective Portfolio's outstanding voting
securities, by SAAMCo or not less than 30 nor more than 60 days written
notice to the Subadviser, or by the Subadviser on 90 days written notice to
SAAMCo and the Trust. Under the terms of the Subadvisory Agreement, the
Subadviser is not liable to the Portfolios, or their shareholders, for any act
or omission by it or for any losses sustained by the Portfolios or their
shareholders, except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties.
The following table sets forth the total Subadvisory fees received by
Wellington, as reported to the Trust by SAAMCo, for each Portfolio pursuant to
the Subadvisory Agreement for the fiscal years ended December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
FEE RATE
PORTFOLIO (AS A % OF AVERAGE DAILY NET ASSET VALUE)
- --------- -----------------------------------------
<S> <C>
Money Market Portfolio .075% first $ 500 million
.02% over $500 million
Government and Quality Bond Portfolio .225% first $50 million
.125% next $450 million
.10% over $100 millon
Fixed Income Portfolio .225% first $50 million
.125% next $50 million
.10% over $100 million
Growth Portfolio .325% first $50 million
.225% next $100 million
.20% next $350 million
.15% over $500 million
High Yield Portfolio .30% first $50 million
.225% next $100 million
.175% next $350 million
.15% over $500 million
Strategic Multi-Asset Portfolio .30% first $50 million
.20% next $100 million
.175% next $350 million
.15% over $500 million
Multi-Asset Portfolio .25% first $50 million
.175% next $100 million
.15% over $150 million
Capital Appreciation Portfolio .375% first $50 million
.275% next $100 million
.20% next $350 million
.15% over $500 million
Growth and Income Portfolio .325% first $50 million
.225% next $100 million
.20% next $350 million
.15% over $500 million
Foreign Securities Portfolio .40% first $50 million
.275% next $100 million
.20% next $350 million
.15% over $500 million
Natural Resources Portfolio .35% first $50 million
.25% next $100 million
.20% next $350 million
.15% over $500 million
</TABLE>
SUBADVISORY FEES
<TABLE>
<CAPTION>
FUND 1998 1997 1996
---- ---------- ---------- ----------
<S> <C> <C> <C>
Growth and Income Portfolio $ 153,906 $ 130,423 $ 102,147
Growth Portfolio $1,183,587 $ 910,003 $ 766,639
Capital Appreciation Portfolio $1,768,901 $1,429,761 $1,057,476
Foreign Securities Portfolio $ 132,121 $ 179,429 $ 206,599
Natural Resources Portfolio $ 160,091 $ 175,784 $ 140,974
</TABLE>
B-46
<PAGE> 86
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---------- -------- --------
<S> <C> <C> <C>
Multi-Asset Portfolio $292,376 $299,772 $310,404
Strategic Multi-Asset Portfolio $151,231 $162,641 $169,536
Money Market Portfolio $ 51,784 $ 57,570 $ 64,822
Government and Quality Bond Portfolio $374,056 $294,844 $299,809
Fixed Income Portfolio $ 39,885 $ 44,640 $ 54,875
High Yield Portfolio $ 96,888 $122,680 $134,409
</TABLE>
OFFICERS AND TRUSTEES OF THE TRUST
The following table lists the Trustees and executive officers of the
Trust, their ages, business addresses and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money Market Funds, Inc. An asterisk
indicates those Trustees who may be deemed to be "interested persons" of the
Trust as that term is defined in the 1940 Act.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position with the Trust During Past 5 Years
- --------------------- ----------------------- -------------------
<S> <C> <C>
S. James Coppersmith, 66 Trustee (since 1987) Retired; formerly, President and
7 Elmwood Road General Manager, WCVB-TV, a
Marblehead, MA 01945 division of the Hearst Corporation
(1982 to 1994); Director/Trustee
the SunAmerica Mutual Funds,
Style Select Series, Inc. ("Style
Select") and SunAmerica Strategic
Investment Series, Inc.
Samuel M. Eisenstat, 59 Trustee and Attorney, solo practitioner; Of
430 East 86 Street Chairman of the Counsel, Kramer, Levin, Naftalis
New York, NY 10028 Board (since 1986) & Frankel; 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, Style Select
and SunAmerica Strategic Investment
Series, Inc.
</TABLE>
B-47
<PAGE> 87
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position with the Trust During Past 5 Years
- --------------------- ----------------------- -------------------
<S> <C> <C>
Stephen J. Gutman, 55 Trustee (since 1986) Partner and Managing Member of
515 East 79 Street B.B. Associates LLC (menswear
New York, NY 10021 specialty retailing and other
activities) since June 1988;
Chairman of the Board, Chief
Operating and Executive Officer
of Beau Brummel Casuals
Limited, Inc., a menswear
special retailer since May
1989; Director/Trustee of the
SunAmerica Mutual Funds, Style
Select and SunAmerica Strategic
Investment Series, Inc.
Peter A. Harbeck*, 45 Trustee and President Director/Trustee of SunAmerica
The SunAmerica Center (since 1994) Mutual Funds, Style Select and
733 Third Avenue SunAmerica Strategic Investment
New York, NY 10017-3204 Series, Inc.; Director and President
of SAAMCo; Director of
SunAmerica Capital Services,
Inc. ("SACS"), since February
1993; Director and President of
SunAmerica Fund Services, Inc.
("SAFS"), since May 1988;
President of SunAmerica Mutual
Funds; Executive Vice President
and Chief Operating Officer of
SAAMCo, from May 1988 to
August 1995; Executive Vice
President, SACS, from November
1991 to August 1995; and
Director, Resources Trust
Company.
Peter C. Sutton, 34 Treasurer (since 1994) Senior Vice President,
The SunAmerica Center SAAMCo, since April 1997;
733 Third Avenue Treasurer, SAAMCo Mutual
New York, NY 10017-3204 Funds since February 1996,
Style Select and SunAmerica
Strategic Investment Series, Inc.,
since December 18, 1998, since
September 1996; Vice President and
Assistant Treasurer of
SunAmerica Series Trust and
Anchor Pathway Fund since
October 1994 and Seasons Series
Trust since April 1997;
formerly, Vice President of
</TABLE>
B-48
<PAGE> 88
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position with the Trust During Past 5 Years
- --------------------- ----------------------- -------------------
<S> <C> <C>
SAAMCo (1994-1997);
Controller, SunAmerica Mutual
Funds (March 1993 - February
1996) and Assistant Controller,
SunAmerica Mutual Funds (1990-
1993); joined SAAMCo in
1990.
Robert M. Zakem, 41 Secretary and Chief Secretary of SunAmerica Strategic
The SunAmerica Center Compliance Officer Investment Series Inc., since 1998
733 Third Avenue (since 1993) Secretary and Chief Compliance
New York, NY 10017-3204 Officer of SunAmerica Mutual Funds,
since 1993 and StyleSelect, since
1996; Senior Vice President and
General Counsel of SAAMCo, since
April 1993; Executive Vice
President, General Counsel and
Director, SACS, since February
1993; and Vice President,
General Counsel and Assistant
Secretary of SAFS, since
January 1994; Vice President
and Assistant Secretary,
SunAmerica Series Trust and
Anchor Pathway Fund, since
April 1993; Vice President and
Assistant Secretary of Seasons
Series Trust, since April 1997.
</TABLE>
The Trustees of the Trust are responsible for the overall supervision of
the operation of the Trust and each Portfolio and perform various duties imposed
on trustees of investment companies by the 1940 Act and under the Trust's
Declaration of Trust. Each of the non-affiliated Trustees is entitled to
compensation from the Trust consisting of an annual fee of $20,000 in addition
to reimbursement of out-of-pocket expenses in connection with attendance at
meetings of the Trustees. 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 assets of each
Portfolio. Officers are compensated by SAAMCo or its affiliates and receive
no compensation from the Trust.
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<PAGE> 89
In addition, each non-affiliated Trustee also serves on the Audit
Committee of the Board of Trustees. The Audit Committee is charged with
recommending to the Full Board the engagement or discharge of the Trust's
independent accountants, directing investigations into matters within the scope
of the independent accountants' duties; reviewing with the independent
accountants the audit plan and results of the audit; approving professional
services provided by the independent accountants and other accounting firms
prior to the performance of such services; reviewing the independence of the
independent accountants; considering the range of audit and non-audit fees; and
preparing and submitting committee minutes to the Full Board. 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 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 Nominating Committee, comprised solely
of non-affiliated 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 without compensation.
The Trustees (and Directors) of the SunAmerica Mutual Funds Style
Select, SunAmerica Strategic Investment Series, Inc. 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 a non-affiliated Trustee who has at
least 10 years of consecutive service as a non-affiliated 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.
As of March 1, 1999, the Trustees and officers of the Trust owned in
the aggregate, less than 1% of the total outstanding shares of each Portfolio of
the Trust.
The following table sets forth information summarizing the compensation
of each disinterested Trustee for his services as Trustee for the fiscal year
ended December 31, 1998. Neither the Trustees who are interested persons of the
Trust nor any officers of the Trust receive any compensation.
B-50
<PAGE> 90
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM REGISTRANT BENEFITS BENEFITS UPON FROM REGISTRANT
ACCRUED AS PART RETIREMENT AND FUND
OF FUND COMPLEX PAID TO
TRUSTEE EXPENSES* TRUSTEES*
- ------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
S. James
Coppersmith $22,153 $41,577 $29,670 $65,000
Samuel M.
Eisenstat $24,153 $36,610 $46,083 $69,000
Stephen J.
Gutman $22,153 $37,909 $60,912 $65,000
</TABLE>
* Information is as of December 31, 1998 for the five investment companies in
the complex that pay fees to these directors/trustees. The complex consists of
the SunAmerica Mutual Funds and Anchor Series Trust.
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
PricewaterhouseCoopers 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 Swidler Berlin
Shereff Friedman, LLP, 919 Third Avenue, New York, New York 10022 has been
selected as legal counsel to 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 Subadviser. If the securities in which a
particular Portfolio invests are traded primarily in the over-the-counter
market, then the Portfolio 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.
B-51
<PAGE> 91
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 Subadviser 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
broker-dealers 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 Wellington 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 Wellington 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 Wellington or SAAMCo will not
necessarily be reduced as a result of the receipt of such supplemental
information. The Subadviser may 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 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
Wellington'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 Subadviser. There may be occasions
when the Trust and one or more of the other clients advised by Wellington 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
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<PAGE> 92
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 Subadvisory
arrangement with Wellington 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 year ended December 31, 1998, the Portfolios acquired
no securities of brokers or dealers that executed its portfolio transactions
during the year.
The following tables set forth the aggregate brokerage commissions paid by the
Portfolios and the amounts of the brokerage commissions paid to affiliated
broker-dealers for such Portfolios for the fiscal years ended December 31, 1998,
1997 and 1996.
1998 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT OF
TRANSACTIONS
INVOLVING
PAYMENT OF
COMMISSIONS
PERCENTAGE OF PAID TO
AGGREGATE AMOUNT COMMISSIONS PAID AFFILIATED
BROKERAGE PAID TO AFFILIATED TO AFFILIATED BROKERS-
PORTFOLIO COMMISSIONS BROKER-DEALERS BROKER-DEALERS DEALERS
--------- ----------- ------------------ --------------- -------------
<S> <C> <C> <C> <C>
Growth and Income
Portfolio $ 34,242 $ 399 1.17% .41%
Growth Portfolio $ 333,218 $10,350 3.11% .77%
Capital Appreciation
Portfolio $1,117,549 $18,102 1.62% .55%
Foreign Securities
Portfolio $ 245,890 -- -- --
Natural Resources
Portfolio $ 97,752 -- -- --
Multi-Asset Portfolio $ 61,729 $ 2,382 3.86% .34%
Strategic Multi-Asset
Portfolio $ 157,819 -- -- --
Money Market Portfolio -- -- -- --
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Government and Quality
Bond Portfolio -- -- --
Fixed Income Portfolio -- -- --
High Yield Portfolio $125 -- --
</TABLE>
1997 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PERCENTAGE OF
BROKERAGE PAID TO AFFILIATED COMMISSIONS PAID TO
PORTFOLIO COMMISSIONS BROKER-DEALERS AFFILIATED BROKER
--------- ----------- -------------- -----------------
<S> <C> <C> <C>
Growth and Income Portfolio $ 34,572 0 0
Growth Portfolio $270,013 $ 250 0.09%
Capital Appreciation Portfolio $948,818 $ 20,400 2.15%
Foreign Securities Portfolio $213,438 0 0
Natural Resources Portfolio $ 82,069 0 0
Multi-Asset Portfolio $113,205 0 0
Strategic Multi-Asset Portfolio $110,345 $ 420 0.38%
Fixed Income Portfolio $ 9 0 0
High Yield Portfolio $ 351 0 0
</TABLE>
1996 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PERCENTAGE OF
BROKERAGE PAID TO AFFILIATED COMMISSIONS PAID TO
PORTFOLIO COMMISSIONS BROKER/DEALERS AFFILIATED BROKER
--------- ----------- -------------- -----------------
<S> <C> <C> <C>
Growth and Income Portfolio $ 39,598 $ 12 0.0%
Growth Portfolio $357,209 $ 6,310 1.8%
Capital Appreciation Portfolio $655,271 $ 25,962 4.0%
Foreign Securities Portfolio $248,098 $ 552 0.2%
Natural Resources Portfolio $ 84,830 $ 1,300 1.5%
Multi-Asset Portfolio $107,911 $ 750 0.7%
Strategic Multi-Asset Portfolio $117,865 $ 3,963 3.4%
</TABLE>
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<PAGE> 94
NET ASSET VALUE
Shares of the Trust are currently offered only to the Variable Separate
Account. The Trust is open for business on any day the New York Stock Exchange
("NYSE") is open for regular trading. Shares are valued each day as of the close
of regular trading in the NYSE (generally, 4:00 p.m., Eastern time). Each
Portfolio calculates the net asset value of its shares separately by dividing
the total value of net assets by the shares outstanding. The net asset value of
a Portfolio's shares will also be computed on each other day in which there is a
sufficient degree of trading in such Portfolio's securities that the net asset
value of its shares might be materially affected by changes in the values of the
portfolio securities; provided, however, that on such day the Trust receives a
request to purchase or redeem such Portfolio's shares. The days and times of
such computation may, in the future, be changed by the Trustees in the event
that the portfolio securities are traded in significant amounts in markets other
than the NYSE, or on days or at times other than those during which the NYSE is
open for trading.
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 that 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 that 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 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.
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<PAGE> 95
A security 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 regular trading on the NYSE. 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
regular trading on the NYSE. If an extraordinary event occurs that 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 pursuant to Rule 2a-7 under 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 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 that might arise from differences
between the two. Rule 2a-7 requires that the Portfolio limit its investments to
instruments that 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
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<PAGE> 96
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
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 is qualified and intends to remain qualified and elect to
be treated as a regulated investment company under Subchapter M under the
Internal Revenue Code of 1986, as amended (the "Code"). To remain qualified as a
regulated investment company, a Portfolio must, among other things, (a) derive
at least 90% of its gross income from the sales or other disposition of
securities, dividends, interest, proceeds from loans of stock or securities and
certain other related income; and (b) diversify its holdings so that, at the end
of each fiscal quarter, (i) 50% of the market value of the Portfolio's assets is
represented by cash, government securities and other securities limited in
respect of any one issuer to 5% of the Portfolio's net assets and to not more
than 10% of the voting securities of any one issuer (other than government
securities) and (ii) not more than 25% of the Portfolio's assets is invested in
the securities (other than government securities or the securities of other
regulated investment companies) of any one issuer.
Each Portfolio will comply with asset diversification regulations
prescribed by the U.S. Treasury Department under the Code. In general, these
regulations effectively provide that, as of the end of each calendar quarter or
within 30 days thereafter, no more than 55% of the total assets of the
Portfolios may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments, and no more than 90% by
any four investments. For this purpose, all securities of the same issuer are
considered a single investment, but each U.S. agency or instrumentality is
treated as a separate issuer. There are also alternative diversification tests
that may be satisfied by the Portfolios under the regulation. Each Portfolio
intends to comply with the diversification regulations. If a Portfolio fails to
comply with these regulations, the contracts invested in that Portfolio will not
be treated as annuity, endowment or life insurance contracts under the Code.
Income received by a Portfolio from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain
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<PAGE> 97
countries and the United States may reduce or eliminate such taxes. It is
impossible to determine in advance the effective rate of foreign tax to which a
Portfolio will be subject, since the amount of that Portfolio's assets to be
invested in various countries is not known. Shareholders are urged to consult
their tax advisors regarding specific questions as to Federal, state and local
taxes.
For the fiscal year ended December 31, 1998 the Fixed Income, High
Yield, Foreign Securities and Natural Resources Portfolios had capital loss
carry-forwards of $1,040,022, $5,402,633, $1,786,520 and $4,083,131,
respectively. To the extent not yet utilized, such losses will be available to
offset future gains through 2002 for the Fixed Income Portfolio, 2003 for the
High Yield Portfolio and 2006 for the Foreign Securities and Natural Resources
Portfolios.
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.
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
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<PAGE> 98
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
As of the date of this Statement of Additional Information, shares of
the Trust are offered only to the separate accounts of the Life Companies. In
turn, these separate accounts fund variable annuity contracts and variable life
insurance policies issued by those insurance companies. 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.
FINANCIAL STATEMENTS
The Trust's audited financial statements are incorporated into this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 858-8850 or writing the Trust at SunAmerica Fund Services, Inc.,
Mutual Fund Operations, The SunAmerica Center, 733 Third Ave, New York, New York
10017-3204.
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<PAGE> 99
APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
DESCRIPTION OF MOODY'S CORPORATE RATINGS
Aaa Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large 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 such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds rated A possess many favorable investment attributes and
are considered as upper medium grade obligations. 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 Bonds rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. 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 Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and
therefore not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of desirable
investments. 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 Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect
to principal or interest.
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Ca Bonds rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of the generic rating
category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representations as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
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Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks that may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships that exist with the issuer; and (8) recognition by management of
obligations that may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
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obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues only in
small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having
predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than
other speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions that could lead to inadequate capacity to
meet timely interest and principal payment. The BB rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but presently
has the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions
would likely impair capacity or willingness to pay interest and
repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial and
economic conditions to meet timely payments of interest and
repayments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
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CC The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC- debt rating. The
C rating may be used to cover a situation where a bankruptcy
petition has been filed but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest
is being paid.
D Debt rated D is in default. The D rating is assigned on the day
an interest or principal payment is missed. The D rating also
will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or minus (-): The ratings of AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within these
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the underlying
deposit collateral is insured by the Federal Savings & Loan
Insurance Corp. or the Federal Deposit Insurance Corp. and
interest is adequately collateralized.
* Continuance of the rating is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the credit-worthiness of the obligor but do not take
into account currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA," "AA," "A," "BBB," commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating
B-64
<PAGE> 104
or other standards for obligations eligible for investment by savings banks,
trust companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest.
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative
degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those
issues designated "A-1" that are determined to possess
overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to
the adverse effect of changes in circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as having only adequate capacity
for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D This rating indicates that the issue is either in default or is
expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell
a security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
B-65
<PAGE> 105
PART C
OTHER INFORMATION
Item 23. Exhibits.
(a) Declaration of Trust, as amended. Incorporated
herein by reference to Post-Effective Amendment No.
24 to Registrant's Registration Statement on Form
N-1A (File No. 2-86188) filed on December 28, 1995.
(b) By-Laws, as amended. Incorporated herein by reference
to Post-Effective Amendment No. 24 to Registrant's
Registration Statement on Form N-1A (File No.
2-86188) filed on December 28, 1995.
(c) Inapplicable.
(d) (1) Investment Advisory and Management Agreement
between Registrant and SunAmerica Asset
Management Corp. ("Sunamerica").
(2) Subadvisory Agreement between SunAmerica and
Wellington Management Company, LLP.
(e) Inapplicable.
(f) Directors'/Trustees' Retirement Plan.
(g) Custodian Contract, as amended. Incorporated herein
by reference to Post-Effective Amendment No. 27 to
the Registrant's Registration Statement on Form N-1A
(File No. 2-86188) filed on February 28, 1997.
(h) Form of Fund Participation Agreement. Incorporated
herein by reference to Post-Effective Amendment No.
25 to the Registrant's Registration Statement on Form
N-1A (File No. 2-86188) filed on February 29, 1996.
(i) Opinion and Consent of Counsel.
(j) Consent of Independent Accountants.
(k) Inapplicable.
(l) Inapplicable.
<PAGE> 106
(m) Inapplicable.
(n) Financial Data Schedules.
(o) (i) Inapplicable.
(ii) Powers of Attorney. Incorporated herein by
reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A
(File No. 2-86188) filed on February 29, 1996.
Item 24. Persons Controlled By or Under Common Control with Registrant.
There are no persons controlled by or under common control
with Registrant.
Item 25. Indemnification.
The Declaration of Trust (Section 5.3) provides that "[e]ach
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
<PAGE> 107
connection with any action which is the subject of any
threatened, asserted, pending or completed action, suit or
proceeding, whether civil, criminal, administrative,
investigative or otherwise and whether formal or informal to
which any trustee was, is or is threatened to be made a party
by reason of facts which include his being or having been a
trustee, but only to the extent such expenses and liabilities
are not covered by insurance.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (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 26. Business and Other Connections of the Investment Adviser.
Information concerning the business and other connections of
SunAmerica, the Investment Adviser, is incorporated herein by
reference to SunAmerica's Form ADV (File No. 801-19813), and
information concerning the business and other connections of
Wellington Management Company, LLP ("Wellington"), the
Subadviser, 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 27. Principal Underwriters.
There is no principal underwriter for the Registrant.
Item 28. Location and 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.
<PAGE> 108
SunAmerica Asset Management Corp. is located at 733 Third
Avenue, New York, NY 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, LLP is located at 75 State
Street, Boston, Massachusetts 02109. It maintains the books
and records required to be maintained pursuant to Section
31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder.
Item 29. Management Services.
Inapplicable.
Item 30. Undertakings.
Inapplicable.
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, (the "1933 Act") and the Investment Company Act of 1940, as amended,
the Registrant certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment No. 30 to the Registration
Statement under Rule 485 (b) under the 1933 Act and has duly caused this
Post-Effective Amendment No. 30 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York, on 30 of March, 1999.
ANCHOR SERIES TRUST
By: /s/ Peter A. Harbeck
-----------------------
Peter A. Harbeck
President and Trustee
Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 30 to the Registrant's Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated:
/s/ Peter A. Harbeck President and Trustee March 30, 1999
- ------------------------- (Principal Executive Officer)
Peter A. Harbeck
* Trustee
- -------------------------
Peter C. Sutton
* Trustee
- -------------------------
S. James Coppersmith
* Trustee
- -------------------------
Samuel M. Eisenstat
* Trustee
- -------------------------
Stephen J. Gutman
*By: /s/ Peter A. Harbeck March 30, 1999
------------------------
Attorney-in-Fact
Peter A. Harbeck
<PAGE> 110
EXHIBIT INDEX
(d) (1) Investment Advisory and Management Agreement between
Registrant and SunAmerica Asset Management Corp.
("Sunamerica").
(2) Subadvisory Agreement between SunAmerica and Wellington
Management Company, LLP.
(f) Directors'/Trustees' Retirement Plan.
(i) Opinion and Consent of Counsel.
(j) Consent of Independent Accountants.
(n) Financial Data Schedules.
<PAGE> 1
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT is dated as of
January 1, 1999, between ANCHOR SERIES TRUST, a Massachusetts business trust
(the "Trust") and SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser" or "SAAMCo").
In consideration of the mutual agreements herein made, the parties
hereto agree as follows:
1.
THE TRUST'S PORTFOLIOS. The Trust is authorized to issue shares in separate
series, with each series representing interests in a separate portfolio of
securities and other assets, and currently offers shares of the series set forth
in Schedule A attached hereto (the "Portfolios"). It is recognized that
additional Portfolios may be added and certain current Portfolios may be deleted
in the future.
2.
DUTIES OF THE ADVISER. The Adviser shall manage the affairs of the Trust as set
forth herein, either by taking such actions itself or by delegating its duties
to a subadviser pursuant to a written subadvisory agreement. Such duties shall
include, 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 and
making purchases and sales of securities on behalf of each Portfolio. The
Adviser's management shall be subject to the control of the Trustees of the
Trust (the "Trustees") and in accordance with the objectives, policies and
restrictions for each such Portfolio 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, as well as to the factors
affecting the Trust's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended, (the "Code") and the regulations
thereunder and the status of variable contracts under the diversification
requirements set forth in Section 817(h) of the Code and the regulations
thereunder. In performing such duties, the Adviser shall (i) provide such office
space, 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)
be responsible for the financial and accounting records required to be
maintained by each Portfolio (including those maintained by the Trust's
custodian), (iii) oversee the performance of services provided to each Portfolio
by others, including the custodian, transfer agent, shareholder servicing agent
and subadviser, if any. The Trust acknowledges that the Adviser also acts as the
manager of other investment companies; (iv) together with the assistance of
affiliates, (a) evaluate the subadviser, if any, and advise the Trustees of the
subadviser(s) which the Adviser believes is/are best suited to invest the assets
of each Portfolio, (b) monitor and evaluate the investment performance of each
subadviser employed by the Trust, (c) allocate the portion of each Portfolios'
assets to be managed by each subadviser; and (d) shall recommend changes of or
the addition of subadvisers when appropriate.
<PAGE> 2
The Adviser may delegate certain of its duties under this Agreement
with respect to a Portfolio to a subadviser pursuant to a written agreement,
subject to the approval of the Trustees as required by the Act. The Adviser may,
as it deems necessary or appropriate from time to time, (i) terminate a
subadvisory arrangement with respect to a Portfolio, or a component of the
assets thereof, and engage a new subadviser for such Portfolio, or component
thereof, or (ii) amend the agreement between itself and a subadviser, without
obtaining shareholder approval in either case; provided, however, that any such
new subadvisory arrangement or amendment to an existing arrangement be approved
by the Trustees in the manner required by either Act or order of the Securities
and Exchange Commission exempting the Adviser and the Trust from the provisions
of Section 15(a) of the Act relating to the engagement of subadvisers for the
Portfolios. The Adviser is solely responsible for payment of any fees or other
charges to a subadviser arising from such delegation and the Trust shall have no
liability therefor.
3.
EXPENSES. The Adviser shall pay all of its expenses arising from the performance
of its obligations under this Agreement and shall pay any salaries, fees and
expenses of the Trustees and any officers of the Trust 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, expenses of printing and distributing reports, notices and
proxy materials to shareholders, expenses of data processing and related
services, shareholder recordkeeping and shareholder account service, expenses of
printing and 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 premium dues in
the Investment Company Institute, insurance premiums and extraordinary expenses
such as litigation expenses.
4.
COMPENSATION. (a) As compensation for services performed and the facilities and
personnel provided by the Adviser under this Agreement, the Trust will pay to
the Adviser, promptly after the end of each month for the services rendered by
the Adviser during the preceding 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.
To the extent required by the laws of any state in which the Trust
is subject to an expense guarantee limitation, if the aggregate expenses of any
Portfolio in any fiscal year exceed the specified expense limitation ratios for
that year (calculated on a daily basis), the Adviser agrees to waive such
portion of its advisory fee in excess of the limitation, but such waiver shall
not exceed the full amount of the advisory fee for such year except as may be
elected by Adviser in its discretion. For this purpose, aggregate expenses of a
Portfolio shall include the compensation of the Adviser and all normal expenses,
fees and charges, but shall exclude interest, taxes, brokerage fees on portfolio
transactions, fees and expenses incurred in connection with the distribution of
Trust shares, and extraordinary expenses including litigation expenses. In
addition, from time to time the Adviser may waive fees or reimburse expenses
with respect to a Portfolio in order that its expense ratio not
-2-
<PAGE> 3
exceed a specified amount as set forth in the Portfolio's prospectus. In the
event any amounts are so waived or contributed by the Adviser to the Trust, the
Trust agrees to reimburse the Adviser, within a two-year period after such
waiver, any expenses waived, provided that such reimbursement does not result in
increasing the Trust's aggregate expenses above the aforementioned expense
limitation ratios.
The Adviser's fee shall be accrued daily at 1/365th of the applicable
annual rate set forth above. For the purpose of accruing compensation, the net
assets of the Portfolio shall be that determined in the manner and on the dates
set forth in the current prospectus of the Trust and, on days on which the net
assets are not so determined, the net asset computation to be used shall be as
determined on the next day on which the net assets shall have been determined.
(b) Upon any termination of this Agreement on a day other than the last
day of the month, the fee for the period from the beginning of the month in
which termination occurs to the date of termination shall be prorated according
to the proportion which such period bears to the full month.
5.
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 policies 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.
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.
6.
TERM OF AGREEMENT. This Agreement shall continue in full force and effect with
respect to each Portfolio until two years from the date approved by the Trustees
of the Trust in respect of such Portfolio, and from year to year thereafter so
long as such continuance is approved at least annually (i) by the Trustees by
vote cast in person at a meeting called for the purpose of voting on such
renewal, or by the vote of a majority of the outstanding voting securities (as
defined by the Act) of such Portfolio with respect to which renewal is to be
effected, and (ii) by a majority of the non-interested Trustees by vote cast in
person at a meeting called for the purpose of voting on such renewal. Any
approval of this Agreement or the renewal thereof with respect to a Portfolio by
the vote of a majority of the outstanding voting securities of that Portfolio,
or by the Trustees of the Trust which shall include a majority of the
non-interested Trustees, shall be effective to continue this Agreement with
respect to that Portfolio notwithstanding (a) that this Agreement or the renewal
thereof has not been so approved as to any other Portfolio, or (b) that this
Agreement or the renewal thereof has not been so approved by the vote of a
majority of the outstanding voting securities of the Trust as a whole.
-3-
<PAGE> 4
7.
TERMINATION. This Agreement may be terminated at any time as to a Portfolio,
without payment of any penalty, by the Trustees or by the vote of a majority of
the outstanding voting securities (as defined in the Act) of such Portfolio on
sixty (60) days' written notice to the Adviser. Similarly, the Adviser may
terminate this Agreement without penalty on like notice to the Trust provided,
however, that this Agreement may not be terminated by the Adviser unless another
investment advisory agreement has been approved by the Trust in accordance with
the Act, or after six months' written notice, whichever is earlier. This
Agreement shall automatically terminate in the event of its assignment (as
defined in the Act).
8.
REPORTS. The Adviser shall report to the Trustees, or to any committee or
officers of the Trust acting pursuant to the authority of the Trustees, at such
times and in such detail as shall be reasonable and as the Board may deem
appropriate in order to enable the Trust to determine that the investment
policies of each Portfolio are being observed and implemented and that the
obligations of the Adviser under this Agreement are being fulfilled. Any
investment program undertaken by the Adviser pursuant to this Agreement and any
other activities undertaken by the Adviser on behalf of the Trust shall at all
times be subject to any directives of the Trustees or any duly constituted
committee or officer of the Trust acting pursuant to the authority of the
Trustees.
9.
RECORDS. The Trust is responsible for maintaining and preserving for such period
or periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books and other documents as to constitute the
records forming the basis for all reports, including financial statements
required to be filed pursuant to the Act and for the Trust's auditor's
certification relating thereto. The Adviser hereby undertakes and agrees to
maintain in the form and for the periods required by Rule 31a-2 under the Act,
all records relating to the Portfolio's investments that are required to be
maintained pursuant to the requirements of Rule 31a-1 of the Act.
The Adviser and the Trust agree that all accounts, books and other
records maintained and preserved by each as required hereby shall be subject at
any time, and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, the Trust's auditors,
the Trust or any representative of the Trust, or any governmental agency or
other instrumentality having regulatory authority over the Trust. It is
expressly understood and agreed that the books and records maintained by the
Adviser on behalf of each Portfolio shall, at all times, remain the property of
the Trust.
10.
-4-
<PAGE> 5
LIABILITY OF ADVISER. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties ("disabling conduct")
hereunder on the part of the Adviser (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or entity
affiliated with the Adviser), the Adviser shall not be subject to liability to
the Trust or to any other person for any act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, any
error of judgment or mistake of law or for any loss suffered by any of them in
connection with the matters to which this Agreement relates, except to the
extent specified in Section 36(b) of the Act concerning loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services. Except for such disabling conduct or liability under Section 36(b) of
the Act, the Trust shall indemnify the Adviser (and its officers, directors,
agents, employees, controlling persons, shareholders and any other person or
entity affiliated with the Adviser) from any liability arising from the
Adviser's conduct under this Agreement.
Indemnification to the Adviser or any of its personnel or affiliates
shall be made when (A) 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, (B) 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 Act 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, subadvisers
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 such person is entitled to indemnification. Such
advance shall be subject to at least one of the following: (i) the person to be
indemnified shall provide adequate security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of any lawful advances, or
(iii) 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.
11.
MISCELLANEOUS. 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, 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. Notice is hereby given
that nothing contained herein shall be construed to be binding upon any of the
Trustees, officers, or shareholders of the Trust individually.
-5-
<PAGE> 6
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
----------------------------------------
Peter A. Harbeck
President
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Robert M. Zakem
----------------------------------------
Robert M. Zakem
Senior Vice President and
General Counsel
-6-
<PAGE> 1
EXHIBIT(d)(2)
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of January 1, 1999 by and
between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and WELLINGTON MANAGEMENT COMPANY, a Massachusetts general
partnership (the "Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Anchor Series Trust, a Massachusetts business
trust (the "Trust"), have entered into an Investment Advisory and Management
Agreement dated as of January 1, 1999, (the "Advisory Agreement") pursuant to
which the Adviser has agreed to provide investment management, advisory and
administrative services to the Trust; and
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end management investment company and may
issue shares of beneficial interest, par value $.01 per share, in separately
designated portfolios representing separate funds with their own investment
objectives, policies and purposes; and
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Adviser desires to retain the Subadviser to furnish
investment advisory services to the investment portfolio or portfolios of the
Trust listed on Schedule A attached hereto (the "Portfolio(s)"), and the
Subadviser is willing to furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. DUTIES OF THE SUBADVISER. The Adviser hereby engages the services of
the Subadviser in furtherance of its Investment Advisory and Management
Agreement with the Trust. Pursuant to this Subadvisory Agreement and subject to
the oversight and review of the Adviser, the Subadviser will manage the
investment and reinvestment of a portion of the assets of each Portfolio listed
on Schedule A attached hereto. The Subadviser will determine in its discretion
and subject to the oversight and review of the Adviser, the securities to be
purchased or sold, will provide the Adviser with records concerning its
activities which the Adviser or the Trust is required to maintain, and will
render regular reports to the Adviser and to officers and Trustees of the Trust
concerning its discharge of the foregoing responsibilities. The Subadviser shall
discharge the foregoing responsibilities subject to the control of the officers
and the Trustees of the Trust and in compliance with such policies as the
Trustees of the Trust may from time to time establish, and in compliance with
(a) the objectives, policies, and limitations for the Portfolio(s) set forth in
the Trust's current prospectus and statement of additional information, and (b)
applicable laws and regulations.
The Subadviser represents and warrants to the Adviser that the
portion of assets allocated to it of each of the Portfolios set forth in
Schedule A will at all times be operated and managed (1) in compliance with all
applicable federal and state laws governing its operations and investments; (2)
so as not to jeopardize either the treatment of the variable annuity contracts
issued by the separate account for which the Trust underlies (hereinafter the
"Contracts") as annuity contracts for purposes of the Internal Revenue Code of
1986, as amended (the "Code"),
<PAGE> 2
or the eligibility of the Contracts to qualify for sale to the public in any
state where they may otherwise be sold; and (3) to minimize any taxes and/or
penalties payable by the Trust or such Portfolio. Without limiting the
foregoing, the Subadviser represents and warrants (1) qualification, election
and maintenance of such election by each Portfolio to be treated as a "regulated
investment company" under subchapter M, chapter 1 of the Code, and (2)
compliance with (a) the provisions of the Act and rules adopted thereunder; (b)
the diversification requirements specified in the Internal Revenue Service's
regulations under Section 817(h) of the Code; (c) applicable state insurance
laws; (d) applicable federal and state securities, commodities and banking laws;
and (e) the distribution requirements necessary to avoid payment of any excise
tax pursuant to Section 4982 of the Code. The Subadviser further represents and
warrants that to the extent that any statements or omissions made in any
Registration Statement for the Contracts or shares of the Trust, or any
amendment or supplement thereto, are made in reliance upon and in conformity
with information furnished by the Subadviser expressly for use therein, such
Registration Statement and any amendments or supplements thereto will, when they
become effective, conform in all material respects to the requirements of the
Securities Act of 1933 and the rules and regulations of the Commission
thereunder (the "1933 Act") and the Act and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
The Subadviser accepts such employment and agrees, at its own
expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement.
2. PORTFOLIO TRANSACTIONS. The Subadviser is responsible for decisions to
buy or sell securities and other investments for a portion of the assets of each
Portfolio, broker-dealers and futures commission merchants' selection, and
negotiation of brokerage commission and futures commission merchants' rates. As
a general matter, in executing portfolio transactions, the Subadviser may employ
or deal with such broker-dealers or futures commission merchants as may, in the
Subadviser's best judgement, provide prompt and reliable execution of the
transactions at favorable prices and reasonable commission rates. In selecting
such broker-dealers or futures commission merchants, the Subadviser shall
consider all relevant factors including price (including the applicable
brokerage commission, dealer spread or futures commission merchant rate), the
size of the order, the nature of the market for the security or other
investment, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer or futures commission merchant
involved, the quality of the service, the difficulty of execution, the execution
capabilities and operational facilities of the firm involved, and, in the case
of securities, the firm's risk in positioning a block of securities. Subject to
such policies as the Trustees may determine and consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Subadviser
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of the Subadviser's
having caused a Portfolio to pay a member of an exchange, broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission another member of an exchange, broker or dealer would have
charged for effecting that transaction, if the Subadviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such member of an exchange,
broker or dealer viewed in terms of either that particular transaction or the
Subadviser's overall responsibilities with respect to such Portfolio and to
other clients as to which the Subadviser exercises investment
- 2 -
<PAGE> 3
discretion. In accordance with Section 11(a) of the 1934 Act and Rule 11a2-2(T)
thereunder, and subject to any other applicable laws and regulations including
Section 17(e) of the Act and Rule 17e-1 thereunder, the Subadviser may engage
its affiliates, the Adviser and its affiliates or any other subadviser to the
Trust and its respective affiliates, as broker-dealers or futures commission
merchants to effect portfolio transactions in securities and other investments
for a Portfolio. The Subadviser will promptly communicate to the Adviser and to
the officers and the Trustees of the Trust such information relating to
portfolio transactions as they may reasonably request.
3. COMPENSATION OF THE SUBADVISER. The Subadviser shall not be entitled to
receive any payment from the Trust and shall look solely and exclusively to the
Adviser for payment of all fees for the services rendered, facilities furnished
and expenses paid by it hereunder. As full compensation for the Subadviser under
this Agreement, the Adviser agrees to pay to the Subadviser a fee at the annual
rates set forth in Schedule A hereto with respect to the portion of the assets
managed by the Subadviser for each Portfolio listed thereon. Such fee shall be
accrued daily and paid monthly as soon as practicable after the end of each
month (i.e., the applicable annual fee rate divided by 365 applied to each prior
days' net assets in order to calculate the daily accrual). For purposes of
calculating the Subadviser's fee, the average daily net asset value of a
Portfolio shall mean the average daily net assets for which the Subadviser
actually provides advisory services, and shall be determined by taking an
average of all determinations of such net asset value during the month. If the
Subadviser shall provide its services under this Agreement for less than the
whole of any month, the foregoing compensation shall be prorated.
4. OTHER SERVICES. At the request of the Trust or the Adviser, the
Subadviser in its discretion may make available to the Trust, office facilities,
equipment, personnel and other services. Such office facilities, equipment,
personnel and services shall be provided for or rendered by the Subadviser and
billed to the Trust or the Adviser at the Subadviser's cost.
5. REPORTS. The Trust, the Adviser and the Subadviser agree to furnish to
each other, if applicable, current prospectuses, statements of additional
information, proxy statements, reports of shareholders, certified copies of
their financial statements, and such other information with regard to their
affairs and that of the Trust as each may reasonably request.
6. STATUS OF THE SUBADVISER. The services of the Subadviser to the Adviser
and the Trust are not to be deemed exclusive, and the Subadviser shall be free
to render similar services to others so long as its services to the Trust are
not impaired thereby. The Subadviser shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
7. CERTAIN RECORDS. The Subadviser hereby undertakes and agrees to
maintain, in the form and for the period required by Rule 31a-2 under the Act,
all records relating to the investments of the Portfolio(s) that are required to
be maintained by the Trust pursuant to the requirements of Rule 31a-1 of that
Act. Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 promulgated under the Act which are
prepared or maintained by the Subadviser on behalf of the Trust are the property
of the Trust and will be surrendered promptly to the Trust or the Adviser on
request.
- 3 -
<PAGE> 4
The Subadviser agrees that all accounts, books and other records
maintained and preserved by it as required hereby shall be subject at any time,
and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, the Trust's auditors,
the Trust or any representative of the Trust, the Adviser, or any governmental
agency or other instrumentality having regulatory authority over the Trust.
8. REFERENCE TO THE SUBADVISER. Neither the Trust nor the Adviser or any
affiliate or agent thereof shall make reference to or use the name of the
Subadviser or any of its affiliates in any advertising or promotional materials
without the prior approval of the Subadviser, which approval shall not be
unreasonably withheld.
9. LIABILITY OF THE SUBADVISER. (a) In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of the Subadviser (and its officers,
directors, agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Subadviser) the Subadviser shall not be
subject to liability to the Trust or to any shareholder of the Trust for any act
or omission in the course of, or connected with, rendering services hereunder,
including without limitation, any error of judgment or mistake of law or for any
loss suffered by any of them in connection with the matters to which this
Agreement relates, except to the extent specified in Section 36(b) of the Act
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services. Except for such disabling conduct, the
Adviser shall indemnify the Subadviser (and its officers, directors, partners,
agents, employees, controlling persons, shareholders and any other person or
entity affiliated with the Subadviser) (collectively, the "Indemnified Parties")
from any liability arising from the Subadviser's conduct under this Agreement.
Subadviser hereby indemnifies, defends and protects Adviser and holds Adviser
harmless, from and against any and all liability arising out of Subadviser's
disabling conduct.
(b) The Subadviser agrees to indemnify and hold harmless the Adviser
and its affiliates and each of its directors and officers and each person, if
any, who controls the Adviser within the meaning of Section 15 of the 1933 Act
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), to which the Adviser or its affiliates or
such directors, officers or controlling person may become subject under the 1933
Act, under other statutes, at common law or otherwise, which may be based upon
(i) any wrongful act or breach of this Agreement by the Subadviser, or (ii) any
failure by the Subadviser to comply with the representations and warranties set
forth in Section 1 of this Agreement; provided, however, that in no case is the
Subadviser's indemnity in favor of any person deemed to protect such other
persons against any liability to which such person would otherwise be subject by
reasons of willful misfeasance, bad faith, or gross negligence in the
performance of his, her or its duties or by reason of his, her or its reckless
disregard of obligation and duties under this Agreement.
(c) The Subadviser shall not be liable to the Adviser for (i) any
acts of the Adviser or any other subadviser to the Portfolio with respect to the
portion of the assets of a Portfolio not managed by Subadviser and (ii) acts of
the Subadviser which result from acts of the Adviser, including, but not limited
to, a failure of the Adviser to provide accurate and current information with
respect to any records maintained by Adviser or any other subadviser to a
Portfolio, which records are not also maintained by or otherwise available to
the Subadviser upon reasonable request. The Adviser agrees that Subadviser shall
manage the portion of the assets of a Portfolio allocated to it as if it was a
separate operating series and shall comply with subsections (a) and (b) of
Section I of this Subadvisory Agreement (including, but not limited to, the
investment objectives, policies and restrictions applicable to a Portfolio and
qualifications of a Portfolio as a regulated investment
- 4 -
<PAGE> 5
company under the Code) with respect to the portion of assets of a Portfolio
allocated to Subadviser. The Adviser shall indemnify the Indemnified Parties
from any liability arising from the conduct of the Adviser and any other
subadviser with respect to the portion of a Portfolio's assets not allocated to
Subadviser.
10. PERMISSIBLE INTERESTS. Trustees and agents of the Trust are or may be
interested in the Subadviser (or any successor thereof) as directors, partners,
officers, or shareholders, or otherwise; directors, partners, officers, agents,
and shareholders of the Subadviser are or may be interested in the Trust as
trustees, or otherwise; and the Subadviser (or any successor) is or may be
interested in the Trust in some manner.
11. TERM OF THE AGREEMENT. This Agreement shall continue in full force and
effect with respect to each Portfolio until two years from the date hereof, and
from year to year thereafter so long as such continuance is specifically
approved at least annually (i) by the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Portfolio voting separately from any other
series of the Trust.
With respect to each Portfolio, this Agreement may be terminated at
any time, without payment of a penalty by the Portfolio or the Trust, by vote of
a majority of the Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Act) of the Portfolio, voting separately from any
other series of the Trust, or by the Adviser, on not less than 30 nor more than
60 days' written notice to the Subadviser. With respect to each Portfolio, this
Agreement may be terminated by the Subadviser at any time, without the payment
of any penalty, on 90 days' written notice to the Adviser and the Trust;
provided, however, that this Agreement may not be terminated by the Subadviser
unless another subadvisory agreement has been approved by the Trust in
accordance with the Act, or after six months' written notice, whichever is
earlier. Notwithstanding the foregoing, the Subadviser may terminate the
Agreement upon 60 days' written notice in the event of a breach of the Agreement
by the Adviser. The termination of this Agreement with respect to any Portfolio
or the addition of any Portfolio to Schedule A hereto (in the manner required by
the Act) shall not affect the continued effectiveness of this Agreement with
respect to each other Portfolio subject hereto. This Agreement shall
automatically terminate in the event of its assignment (as defined by the Act).
This Agreement will also terminate in the event that the Advisory
Agreement by and between the Trust and the Adviser is terminated.
12. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
13. AMENDMENTS. This Agreement may be amended by mutual consent in
writing, but the consent of the Trust must be obtained in conformity with the
requirements of the Act.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New York and the applicable provisions of the Act. To
the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall control.
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<PAGE> 6
15. PERSONAL LIABILITY. The Declaration of the Trust establishing the
Trust (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, and, in accordance with that Declaration, no
Trustee, shareholder, officer, employee or agent of the Trust shall be held to
any personal liability, nor shall resort be had to their private property for
satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Trust, but the "Trust Property" only shall be liable.
16. SEPARATE SERIES. Pursuant to the provisions of the Declaration, each
Portfolio is a separate series of the Trust, and all debts, liabilities,
obligations and expenses of a particular Portfolio shall be enforceable only
against the assets of that Portfolio and not against the assets of any other
Portfolio or of the Trust as a whole.
17. NOTICES. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Wellington Management Company
75 State Street
Boston, MA 02109
Adviser: SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue, Third Floor
New York, NY 10017
Attention: Robert M. Zakem
Senior Vice President and
General Counsel
with a copy to: SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attention: Susan L. Harris
Senior Vice President,
General Counsel - Corporate Affairs
and Secretary
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<PAGE> 7
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of the date first above
written.
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Peter A. Harbeck
-----------------------------
Name: Peter A. Harbeck
Title: President
WELLINGTON MANAGEMENT COMPANY
By: /s/ Duncan M. McFarland
-----------------------------
Name: Duncan M. McFarland
Title: Presidential and CEO
- 7 -
<PAGE> 8
SCHEDULE A
FEE RATE
PORTFOLIO (AS A % OF AVERAGE DAILY NET ASSET VALUE)
- --------- -----------------------------------------
Money Market Portfolio .075% first $ 500 million
.02% over $500 million
Government and Quality Bond Portfolio .225% first $50 million
.125% next $450 million
.10% over $100 million
Fixed Income Portfolio .225% first $50 million
.125% next $50 million
.10% over $100 million
Growth Portfolio .325% first $50 million
.225% next $100 million
.20% next $350 million
.15% over $500 million
High Yield Portfolio .30% first $50 million
.225% next $100 million
.175% next $350 million
.15% over $500 million
Strategic Multi-Asset Portfolio .30% first $50 million
.20% next $100 million
.175% next $350 million
.15% over $500 million
Multi-Asset Portfolio .25% first $50 million
.175% next $100 million
.15% over $150 million
Capital Appreciation Portfolio .375% first $50 million
.275% next $100 million
.20% next $350 million
.15% over $500 million
Growth and Income Portfolio .325% first $50 million
.225% next $100 million
.20% next $350 million
.15% over $500 million
Foreign Securities Portfolio .40% first $50 million
.275% next $100 million
.20% next $350 million
.15% over $500 million
Natural Resources Portfolio .35% first $50 million
.25% next $100 million
.20% next $350 million
.15% over $500 million
- 8 -
<PAGE> 1
Exhibit (f)
SunAmerica Disinterested Trustees' and Directors'
Retirement Plan
-------------------------------------------------
Section 1. Adoption and Purpose. The SunAmerica Fund or the Anchor Series
Trust designated on Schedule A, as the case may be (the "Adopting Fund"), has
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Plan"). The purpose of this Plan is to provide, in accordance with the
following terms, deferred compensation in the nature of pension benefits for
(i) Trustees of the Adopting Fund, if it is organized as a Massachusetts
business trust, and (ii) Directors of the Adopting Fund, if it is organized as
a corporation, who in either such case are not "interested persons" (as that
term is defined in the Investment Company Act of 1940, as amended). Such
disinterested Trustees or disinterested Directors are referred to herein
collectively as "Trustees."
Section 2. Effective Date. This Plan shall be effective as of January 1,
1993.
Section 3. Participation. Each Trustee shall become a participant in this
Plan ("Participant") upon the earlier of (a) attainment of age 55 and
completion of ten consecutive years of service as a Trustee of any of the
SunAmerica Funds or the Anchor Series Trust or (b) attainment of age 60 and
completion of five consecutive years of service as a Trustee of any of the
SunAmerica Funds or the Anchor Series Trust. Notwithstanding the foregoing, a
Trustee who was a Trustee on January 1, 1993, and
<PAGE> 2
who at that time, was under age 55, shall become a Participant in this Plan
upon completion of ten consecutive years of service, without regard to his age
at the time of completion of such service. Years of service shall include
service prior to the adoption of this Plan, and service as a Trustee of any
predecessor fund of an Adopting Fund.
Section 4. Eligibility for Benefits. Any Participant shall be eligible
for the benefits described in Section 5 of the Plan upon (i) his death or
disability (within the meaning of Subsection 5(c) of the Plan) while a Trustee
or (ii) the termination of his tenure as a Trustee, other than by removal for
cause, after becoming a Participant, as provided in Section 3 of the Plan, and
on or before his 70th birthday. No benefits shall be payable to any Trustee
whose service as a Trustee terminates otherwise than as provided in this Section
4. Failure to satisfy the requirements of this Section 4 shall result in
forfeiture of any benefits to which a Trustee might otherwise have been entitled
under this Plan.
Section 5. Benefits.
(a) Amount. As of each of the first ten birthdays, prior to his
70th birthday, on which he is both a Trustee and a Participant, each
Participant shall be credited with an amount equal to 50% of his
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<PAGE> 3
regular fees, excluding separate committee meeting fees, for his
services as a Trustee of the Adopting Fund for the calendar year in
which such birthday occurs (but in no event shall such amount be less
than 50% of the regular fees, excluding separate committee meeting
fees, in effect for 1993). As of each birthday, prior to his 70th
birthday, on which he is both a Trustee and a Participant, each
Participant shall also be credited with an amount equal to 8.5% of
any amount credited under this section 5(a) as of any previous
birthday. Following a Participant's satisfaction of the requirements
of Section 4 for eligibility for benefits under the Plan, any amounts
previously credited under this Section 5 that have not been
distributed as of any subsequent birthday of the Participant (or any
subsequent corresponding date on which the Participant's birthday
would have occurred if he were alive) shall be credited as of such
subsequent birthday or corresponding date with 8.5% of such
undistributed amounts.
(b) Retirement Benefits. On or before the earlier of (i) the
last day of the calendar year immediately preceding the calendar year
in which payment of benefits commences under this Subsection 5(b) or
(ii) the date six months preceding the date on
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<PAGE> 4
which payment of benefits commences under this Subsection 5(b), each
Participant may elect in writing, in a form and manner acceptable to the
Committee, as defined herein in Section 7, the form for payment of benefits
under the Plan. Any such election may be revoked and a new election made
prior to the earlier of (i) the last day of the calendar year immediately
preceding the calendar year in which payment of benefits commences under
this Subsection 5(b) or (ii) the date six months preceding the date on
which payment of benefits commences under this Subsection 5(b), but any
election in effect as of the earlier of such dates shall be irrevocable. No
Participant may make more than one election in any calendar year, and all
elections shall be subject to approval by the Committee. A Participant may
elect to receive such benefits in the form of either (i) a lump sum or
(ii) quarterly, semi-annual or annual installments for a period of 5, 10 or
15 years, as the Participant may elect, with payment of each installment on
the quarterly, semi-annual or annual anniversary of the initial payment
hereunder. The amount of each installment shall be a quotient, the
numerator of which is the aggregate amount credited to the Participant
under Subsection 5(a) as of the date for payment under this Subsection
5(b), reduced by the amount of all previous
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<PAGE> 5
payments under the Plan, and the denominator of which, is the number of
installments remaining. Payment of benefits shall commence as soon as
practicable following the Participant's satisfaction of the requirements of
Section 4 by reason of the termination of his tenure as a Trustee. If no
election is in effect at such time, benefits shall be paid in a lump sum.
(c) Disability Benefits. If a Participant satisfies the requirements
of Section 4 by becoming disabled while a Trustee, all amounts credited to
him under Subsection 5(a) shall be paid to him as soon as practicable in
accordance with his election for the form for payment of retirement
benefits. If no election is in effect at such time, benefits shall be paid
in a lump sum. A Participant shall be disabled if the Committee determines,
in its sole discretion, that he is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of
long-continued and indefinite duration.
(d) Death Benefits. If a Participant dies after satisfying the
requirements of Section 4 (or satisfies such requirements by reason of his
death) but before receiving all amounts credited to him under
-5-
<PAGE> 6
Subsection 5(a), any such remaining amounts shall be paid to the beneficiary
designated in writing by the Participant, which designation shall be in a form
and manner acceptable to the Committee, with payment commencing as soon as
practicable after the Participant's death. Payment to the Participant's
designated beneficiary shall be in a lump sum or installments for a period of
years, in accordance with the Participant's election for the form for payment
of retirement benefits. If no election is in effect at such time, benefits
shall be paid in a lump sum. If the Participant fails to execute a valid
beneficiary designation, any amounts otherwise payable to a designated
beneficiary under this Subsection 5(d) shall be paid in a lump sum to the
Participant's estate as soon as practicable after the Participant's death. If
the Committee is unable to locate the Participant's beneficiary within two
years following the Participant's death, any amounts otherwise payable to the
beneficiary under this Subsection 5(d) shall be paid in a lump sum to the
Participant's estate. Notwithstanding any provision of this Subsection 5(d) or
any beneficiary designation by the Participant to the contrary, any
Participant's surviving spouse whose interests in marital property are
determined under the community property laws of any state shall receive 50%
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<PAGE> 7
of amounts otherwise payable under this Subsection 5(d), and the
remainder of such amounts shall be paid in accordance with this
Subsection 5(d)
Section 6. Participants' Rights Unfunded and Unsecured. This Plan
shall not be deemed to create any trust, escrow or other funding arrangement.
The right of any Participant to benefits under this Plan shall be an unsecured
claim against the general assets of the Adopting Fund. If the Adopting Fund is
merged with any other SunAmerica Fund(s), the obligations of the Adopting Fund
under this Plan shall become obligations of the merged fund and shall be
aggregated with any similar pre-merger obligations of the other SunAmerica
Fund(s) involved in the merger under any similar retirement plan. If the
Adopting Fund is liquidated, all amounts credited to a Participant under Section
5(a) as of the liquidation date shall be paid to him in a lump sum as soon as
practicable, provided that if the Participant has not yet reached age 60, such
amounts shall be discounted to reflect payment prior to age 60, using the
interest rates used by the Pension Benefit Guaranty Corporation as of the date
of distribution to determine the present value of a lump sum distribution on
termination of a tax-qualified pension plan.
Section 7. Administration. This Plan shall be administered by a
committee (the "Committee"), the members of
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<PAGE> 8
which shall be appointed by the Board of Trustees or Board of Directors of the
Adopting Fund. The Committee shall be responsible for the interpretation of the
Plan and establishment of the rules and regulations governing Plan
administration. Any decision or action made or taken by the Committee, arising
out of or in connection with the construction, administration or interpretation
of the Plan or of its rules and regulations, shall be conclusive and binding
upon all Participants. In making any such decision or taking any such action,
the Committee shall have full and complete discretion and authority to make
eligibility determinations, construe provisions of the Plan and resolve factual
issues. All expenses of administering the Plan shall be paid by the Adopting
Fund and shall not affect the Participants' right to or amount of benefits.
Section 8. Termination of Plan. The Board of Trustees of the Adopting
Fund may terminate the Plan at any time. Upon termination of the Plan, benefits
shall continue to be credited and paid in accordance with Section 5 hereof to,
or in respect of, any deceased Participant or any Trustee or former Trustee who
is a Participant as of the date of termination of the Plan. No other payments
shall be made to any person under the Plan after the date of termination of the
Plan.
Section. Amendment of Plan. The Board of Trustees or Board of
Directors of the Adopting Fund may, without the
-8-
<PAGE> 9
consent of any Participant, amend the Plan at any time and from time to time,
provided, however, that no amendment shall divest any Participant of rights to
which he would have been entitled under Section 8 if the Plan had been
terminated on the effective date of such amendment.
Section 10. Rights Non-Assignable. The rights of a Participant to receive
payments under Section 5 shall not be assignable, nor shall they be subject to
garnishment, attachment, or any other legal process of creditors of a
Participant. Nothing in the Plan shall create any benefit, right, cause of
action, assignment, transfer or encumbrance in favor of any spouse, heirs or
the estate of any Participant. Notwithstanding the provisions of this Section
10, each Participant agrees, as a condition of participation, to hold the
Adopting Fund, its officers, Board of Trustees or Board of Directors, employees
and agents harmless from any claim that may arise out of the Adopting Fund's
compliance with an order of any state or Federal court, whether such order
effects a judgment of such court or is issued to enforce a judgment or order of
another court.
Section 11. Withholding of Taxes. The Adopting Fund shall have the right
to retain from distributions payable to a Participant amounts required by any
government to be withheld and paid to such government with respect to such
payments.
-9-
<PAGE> 10
Section 12. No Agreement to Retain Trustees. Nothing in this Plan shall be
construed to provide any Trustee with an agreement or understanding, express or
implied, that the Trustee shall be retained as a Trustee for any specified
period of time or that the Board of Trustees or Board of Directors of the
Adopting Fund shall nominate the Trustee for reelection.
Section 13. Acceptance. The acceptance of payments under this Plan by any
Participant constitutes his acceptance of the terms of the Plan and his
agreement to be bound thereby.
-10-
<PAGE> 1
EXHIBIT (i)
[SUNAMERICA ASSET MANAGEMENT CORP. LETTERHEAD]
March 23, 1999
Ladies and Gentlemen: [SUNAMERICA ASSET MANAGEMENT LOGO]
This opinion is being furnished in connection with the filing by
Anchor Series Trust, a Massachusetts business trust (the "Trust"), of
Post-Effective Amendment No. 30 (the "Amendment") to the Registration Statement
on Form N-1A (the "Registration Statement") which registers an indefinite number
of shares of beneficial interest of each series of the Trust having par value of
$.01 per Share, (the "Shares") under the Securities Act of 1933, as amended (the
"1933 Act"), pursuant to the Trust's Registration Statement.
As counsel for the Trust, I am familiar with the proceedings taken
by the Trust in connection with the authorization, issuance and sale of the
Shares. In addition, I have examined the Trust's Declaration of Trust, By-Laws
and such other documents that have been deemed relevant to the matters referred
to herein.
Based upon the foregoing, I am of the opinion that, upon issuance
and sale of the Shares in the manner referred to in the Amendment, the Shares
will be legally issued, fully paid and nonassessable shares of beneficial
interest of the Trust. However, I note that as set forth in the Registration
Statement, shareholders or contract owners of Anchor Series Trust might, under
certain circumstances, be liable for transactions effected by the Trust.
I hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Amendment, and to the filing of
this opinion under the securities laws of any state.
Very truly yours,
By: /s/ Robert M. Zakem
--------------------------------------
Name: Robert M. Zakem
Title: Senior Vice President and General Counsel
<PAGE> 1
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 30
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated February 16, 1999, relating to the financial statements and
financial highlights appearing in the December 31, 1998 Annual Report to
Shareholders of Anchor Series Trust, which are also incorporated by reference
into the Registration Statement. We also consent to the reference to us under
the heading "Independent Accountants and Legal Counsel" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in the Prospectus, which constitutes part of this Registration
Statement.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 01
<NAME> ANCHOR SERIES TRUST MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 65,604,895<F1>
<INVESTMENTS-AT-VALUE> 65,604,895<F1>
<RECEIVABLES> 1,340,374<F1>
<ASSETS-OTHER> 18,048<F1>
<OTHER-ITEMS-ASSETS> 3,652<F1>
<TOTAL-ASSETS> 66,966,969<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,413,656<F1>
<TOTAL-LIABILITIES> 1,413,656<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 65,553,313<F1>
<SHARES-COMMON-STOCK> 65,553,313<F1>
<SHARES-COMMON-PRIOR> 69,804,181<F1>
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> 1,211<F1>
<ACCUMULATED-NET-GAINS> 1,211<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 0<F1>
<NET-ASSETS> 65,553,313<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,855,511<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (399,769)<F1>
<NET-INVESTMENT-INCOME> 3,455,742<F1>
<REALIZED-GAINS-CURRENT> 0<F1>
<APPREC-INCREASE-CURRENT> 0<F1>
<NET-CHANGE-FROM-OPS> 3,455,742<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,455,742)<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 172,261,459<F1>
<NUMBER-OF-SHARES-REDEEMED> (179,651,239)<F1>
<SHARES-REINVESTED> 3,138,912<F1>
<NET-CHANGE-IN-ASSETS> (4,250,868)<F1>
<ACCUMULATED-NII-PRIOR> 632<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 632<F1>
<GROSS-ADVISORY-FEES> 345,223<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 400,089<F1>
<AVERAGE-NET-ASSETS> 69,044,714<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> 0.05<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> (0.05)<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 0.60<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to Anchor Series Money Market Fund as a
whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 02
<NAME> ANCHOR SERIES TRUST GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 418,453,056<F1>
<INVESTMENTS-AT-VALUE> 671,883,113<F1>
<RECEIVABLES> 1,686,742<F1>
<ASSETS-OTHER> 42,481<F1>
<OTHER-ITEMS-ASSETS> 235<F1>
<TOTAL-ASSETS> 673,612,571<F1>
<PAYABLE-FOR-SECURITIES> 2,135,846<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,146,884<F1>
<TOTAL-LIABILITIES> 4,282,730<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 367,299,368<F1>
<SHARES-COMMON-STOCK> 20,581,369<F1>
<SHARES-COMMON-PRIOR> 17,953,297<F1>
<ACCUMULATED-NII-CURRENT> 2,119,618<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 46,480,798<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 253,430,057<F1>
<NET-ASSETS> 669,329,841<F1>
<DIVIDEND-INCOME> 5,365,025<F1>
<INTEREST-INCOME> 1,029,464<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4,209,471)<F1>
<NET-INVESTMENT-INCOME> 2,185,018<F1>
<REALIZED-GAINS-CURRENT> 46,595,637<F1>
<APPREC-INCREASE-CURRENT> 98,358,771<F1>
<NET-CHANGE-FROM-OPS> 147,139,426<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,560,000)<F1>
<DISTRIBUTIONS-OF-GAINS> (31,210,000)<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 8,911,772<F1>
<NUMBER-OF-SHARES-REDEEMED> (7,621,126)<F1>
<SHARES-REINVESTED> 1,337,426<F1>
<NET-CHANGE-IN-ASSETS> 183,801,581<F1>
<ACCUMULATED-NII-PRIOR> 2,514,747<F1>
<ACCUMULATED-GAINS-PRIOR> 31,075,014<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3,948,827<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 4,209,747<F1>
<AVERAGE-NET-ASSETS> 564,585,796<F1>
<PER-SHARE-NAV-BEGIN> 27.04<F1>
<PER-SHARE-NII> 0.11<F1>
<PER-SHARE-GAIN-APPREC> 7.19<F1>
<PER-SHARE-DIVIDEND> (0.14)<F1>
<PER-SHARE-DISTRIBUTIONS> (1.68)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 32.52<F1>
<EXPENSE-RATIO> 0.80<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to Anchor Series Trust Growth Fund as a whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 03
<NAME> ANCHOR SERIES TRUST FIXED INCOME
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 16,753,345<F1>
<INVESTMENTS-AT-VALUE> 17,105,815<F1>
<RECEIVABLES> 339,617<F1>
<ASSETS-OTHER> 8,250<F1>
<OTHER-ITEMS-ASSETS> 4,421<F1>
<TOTAL-ASSETS> 17,458,103<F1>
<PAYABLE-FOR-SECURITIES> 4,930<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 22,837<F1>
<TOTAL-LIABILITIES> 27,767<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 17,019,400<F1>
<SHARES-COMMON-STOCK> 1,320,394<F1>
<SHARES-COMMON-PRIOR> 1,379,083<F1>
<ACCUMULATED-NII-CURRENT> 1,148,173<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 0<F1>
<OVERDISTRIBUTION-GAINS> 1,089,707<F1>
<ACCUM-APPREC-OR-DEPREC> 352,470<F1>
<NET-ASSETS> 17,430,336<F1>
<DIVIDEND-INCOME> 3,584<F1>
<INTEREST-INCOME> 1,351,797<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (169,029)<F1>
<NET-INVESTMENT-INCOME> 1,186,352<F1>
<REALIZED-GAINS-CURRENT> 159,449<F1>
<APPREC-INCREASE-CURRENT> 15,677<F1>
<NET-CHANGE-FROM-OPS> 1,361,478<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,415,000)<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 233,978<F1>
<NUMBER-OF-SHARES-REDEEMED> (392,187)<F1>
<SHARES-REINVESTED> 109,520<F1>
<NET-CHANGE-IN-ASSETS> (884,886)<F1>
<ACCUMULATED-NII-PRIOR> 1,372,518<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 1,695,246<F1>
<GROSS-ADVISORY-FEES> 110,791<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 169,196<F1>
<AVERAGE-NET-ASSETS> 17,726,472<F1>
<PER-SHARE-NAV-BEGIN> 13.28<F1>
<PER-SHARE-NII> 0.90<F1>
<PER-SHARE-GAIN-APPREC> 0.14<F1>
<PER-SHARE-DIVIDEND> (1.12)<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.20<F1>
<EXPENSE-RATIO> 1.00<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to Anchor Series Trust Fixed Income as a whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 04
<NAME> ANCHOR SERIES TRUST GOVERNMENT & QUALITY BOND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 373,580,470<F1>
<INVESTMENTS-AT-VALUE> 381,026,395<F1>
<RECEIVABLES> 17,369,504<F1>
<ASSETS-OTHER> 43,173<F1>
<OTHER-ITEMS-ASSETS> 1,474<F1>
<TOTAL-ASSETS> 398,440,546<F1>
<PAYABLE-FOR-SECURITIES> 20,148,970<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,624,201<F1>
<TOTAL-LIABILITIES> 22,773,171<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 344,989,706<F1>
<SHARES-COMMON-STOCK> 25,668,435<F1>
<SHARES-COMMON-PRIOR> 16,803,116<F1>
<ACCUMULATED-NII-CURRENT> 16,374,488<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 6,857,256<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 7,445,925<F1>
<NET-ASSETS> 375,667,375<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 18,382,841<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,010,260)<F1>
<NET-INVESTMENT-INCOME> 16,372,581<F1>
<REALIZED-GAINS-CURRENT> 7,949,861<F1>
<APPREC-INCREASE-CURRENT> 1,573,127<F1>
<NET-CHANGE-FROM-OPS> 25,895,569<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (13,600,000)<F1>
<DISTRIBUTIONS-OF-GAINS> (500,000)<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 22,544,620<F1>
<NUMBER-OF-SHARES-REDEEMED> (14,658,468)<F1>
<SHARES-REINVESTED> 979,167<F1>
<NET-CHANGE-IN-ASSETS> 141,044,428<F1>
<ACCUMULATED-NII-PRIOR> 13,552,555<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 547,474<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,819,571<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,010,359<F1>
<AVERAGE-NET-ASSETS> 299,055,779<F1>
<PER-SHARE-NAV-BEGIN> 13.96<F1>
<PER-SHARE-NII> 0.79<F1>
<PER-SHARE-GAIN-APPREC> 0.48<F1>
<PER-SHARE-DIVIDEND> (0.57)<F1>
<PER-SHARE-DISTRIBUTIONS> (0.02)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 14.64<F1>
<EXPENSE-RATIO> 0.70<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to Anchor Series Trust Government & Quality Bond as
a whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 05
<NAME> ANCHOR SERIES TRUST NATURAL RESOURCES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 44,602,910
<INVESTMENTS-AT-VALUE> 38,348,435
<RECEIVABLES> 1,837,797
<ASSETS-OTHER> 2,118
<OTHER-ITEMS-ASSETS> 2,987
<TOTAL-ASSETS> 40,191,337
<PAYABLE-FOR-SECURITIES> 371,733
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 520,727
<TOTAL-LIABILITIES> 892,460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,984,806
<SHARES-COMMON-STOCK> 3,391,502
<SHARES-COMMON-PRIOR> 3,470,928
<ACCUMULATED-NII-CURRENT> 651,667
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,083,121
<ACCUM-APPREC-OR-DEPREC> (6,254,475)
<NET-ASSETS> 39,298,877
<DIVIDEND-INCOME> 1,018,217
<INTEREST-INCOME> 98,623
<OTHER-INCOME> 0
<EXPENSES-NET> 406,116
<NET-INVESTMENT-INCOME> 710,724
<REALIZED-GAINS-CURRENT> (4,090,382)
<APPREC-INCREASE-CURRENT> (5,226,688)
<NET-CHANGE-FROM-OPS> (8,606,346)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 620,000
<DISTRIBUTIONS-OF-GAINS> 425,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,578,157
<NUMBER-OF-SHARES-REDEEMED> (24,726,866)
<SHARES-REINVESTED> 1,045,000
<NET-CHANGE-IN-ASSETS> (10,755,055)
<ACCUMULATED-NII-PRIOR> 591,715
<ACCUMULATED-GAINS-PRIOR> 406,552
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 344,730
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 406,399
<AVERAGE-NET-ASSETS> 45,964,041
<PER-SHARE-NAV-BEGIN> 14.42
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> (2.72)
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 06
<NAME> ANCHOR SERIES TRUST HIGH YIELD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 29,066,984<F1>
<INVESTMENTS-AT-VALUE> 25,694,782<F1>
<RECEIVABLES> 701,255<F1>
<ASSETS-OTHER> 8,609<F1>
<OTHER-ITEMS-ASSETS> 1,969<F1>
<TOTAL-ASSETS> 26,406,615<F1>
<PAYABLE-FOR-SECURITIES> 210,981<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 96,873<F1>
<TOTAL-LIABILITIES> 307,854<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 32,337,242<F1>
<SHARES-COMMON-STOCK> 3,839,735<F1>
<SHARES-COMMON-PRIOR> 4,798,650<F1>
<ACCUMULATED-NII-CURRENT> 2,844,811<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 0<F1>
<OVERDISTRIBUTION-GAINS> 5,711,090<F1>
<ACCUM-APPREC-OR-DEPREC> (3,372,202)<F1>
<NET-ASSETS> 26,098,761<F1>
<DIVIDEND-INCOME> 72,101<F1>
<INTEREST-INCOME> 3,123,657<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (303,561)<F1>
<NET-INVESTMENT-INCOME> 2,892,197<F1>
<REALIZED-GAINS-CURRENT> 388,404<F1>
<APPREC-INCREASE-CURRENT> (4,008,283)<F1>
<NET-CHANGE-FROM-OPS> (727,682)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,760,000)<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,203,779<F1>
<NUMBER-OF-SHARES-REDEEMED> (3,737,618)<F1>
<SHARES-REINVESTED> 574,924<F1>
<NET-CHANGE-IN-ASSETS> (14,094,500)<F1>
<ACCUMULATED-NII-PRIOR> 3,705,994<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 9,486,051<F1>
<GROSS-ADVISORY-FEES> 226,072<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 304,095<F1>
<AVERAGE-NET-ASSETS> 32,295,950<F1>
<PER-SHARE-NAV-BEGIN> 8.38<F1>
<PER-SHARE-NII> 0.71<F1>
<PER-SHARE-GAIN-APPREC> (1.13)<F1>
<PER-SHARE-DIVIDEND> (1.16)<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 6.80<F1>
<EXPENSE-RATIO> 0.90<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to Anchor Series Trust High Yield as a whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 07
<NAME> ANCHOR SERIES TRUST STRATEGIC MULTI-ASSET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 43,354,788<F1>
<INVESTMENTS-AT-VALUE> 49,226,381<F1>
<RECEIVABLES> 408,542<F1>
<ASSETS-OTHER> 214,491<F1>
<OTHER-ITEMS-ASSETS> 3,290<F1>
<TOTAL-ASSETS> 49,852,704<F1>
<PAYABLE-FOR-SECURITIES> 258,478<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 339,997<F1>
<TOTAL-LIABILITIES> 598,475<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 34,330,285<F1>
<SHARES-COMMON-STOCK> 4,706,707<F1>
<SHARES-COMMON-PRIOR> 4,723,650<F1>
<ACCUMULATED-NII-CURRENT> 1,023,157<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 7,996,408<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 5,904,379<F1>
<NET-ASSETS> 49,254,229<F1>
<DIVIDEND-INCOME> 401,455<F1>
<INTEREST-INCOME> 1,390,371<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (754,495)<F1>
<NET-INVESTMENT-INCOME> 1,037,331<F1>
<REALIZED-GAINS-CURRENT> 8,087,166<F1>
<APPREC-INCREASE-CURRENT> (1,785,888)<F1>
<NET-CHANGE-FROM-OPS> 7,338,609<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,050,000)<F1>
<DISTRIBUTIONS-OF-GAINS> (7,725,000)<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 172,090<F1>
<NUMBER-OF-SHARES-REDEEMED> (1,164,033)<F1>
<SHARES-REINVESTED> 975,000<F1>
<NET-CHANGE-IN-ASSETS> (4,034,921)<F1>
<ACCUMULATED-NII-PRIOR> 1,039,089<F1>
<ACCUMULATED-GAINS-PRIOR> 7,631,528<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 512,866<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 754,859<F1>
<AVERAGE-NET-ASSETS> 51,286,629<F1>
<PER-SHARE-NAV-BEGIN> 11.28<F1>
<PER-SHARE-NII> 0.23<F1>
<PER-SHARE-GAIN-APPREC> 1.13<F1>
<PER-SHARE-DIVIDEND> (0.26)<F1>
<PER-SHARE-DISTRIBUTIONS> (1.92)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.46<F1>
<EXPENSE-RATIO> 1.50<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to Anchor Series Trust Strategic Multi-Asset as a
whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 08
<NAME> ANCHOR SERIES TRUST MULTI-ASSET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 107,007,516<F1>
<INVESTMENTS-AT-VALUE> 146,441,749<F1>
<RECEIVABLES> 716,368<F1>
<ASSETS-OTHER> 27,833<F1>
<OTHER-ITEMS-ASSETS> 4,560<F1>
<TOTAL-ASSETS> 147,190,510<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 478,541<F1>
<TOTAL-LIABILITIES> 478,541<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 84,823,973<F1>
<SHARES-COMMON-STOCK> 10,876,228<F1>
<SHARES-COMMON-PRIOR> 10,774,534<F1>
<ACCUMULATED-NII-CURRENT> 3,123,018<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 19,499,271<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 39,265,707<F1>
<NET-ASSETS> 146,711,969<F1>
<DIVIDEND-INCOME> 1,021,515<F1>
<INTEREST-INCOME> 3,683,492<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,574,454)<F1>
<NET-INVESTMENT-INCOME> 3,130,553<F1>
<REALIZED-GAINS-CURRENT> 19,618,301<F1>
<APPREC-INCREASE-CURRENT> 9,245,092<F1>
<NET-CHANGE-FROM-OPS> 31,993,946<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,675,000)<F1>
<DISTRIBUTIONS-OF-GAINS> (22,720,000)<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 925,146<F1>
<NUMBER-OF-SHARES-REDEEMED> (3,083,297)<F1>
<SHARES-REINVESTED> 2,259,846<F1>
<NET-CHANGE-IN-ASSETS> 1,026,535<F1>
<ACCUMULATED-NII-PRIOR> 3,631,038<F1>
<ACCUMULATED-GAINS-PRIOR> 22,637,397<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,457,255<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,574,837<F1>
<AVERAGE-NET-ASSETS> 145,725,510<F1>
<PER-SHARE-NAV-BEGIN> 13.52<F1>
<PER-SHARE-NII> 0.30<F1>
<PER-SHARE-GAIN-APPREC> 2.56<F1>
<PER-SHARE-DIVIDEND> (0.40)<F1>
<PER-SHARE-DISTRIBUTIONS> (2.49)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.49<F1>
<EXPENSE-RATIO> 1.10<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the fund as a whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 09
<NAME> ANCHOR SERIES TRUST CAPITAL APPRECIATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 778,361,982<F1>
<INVESTMENTS-AT-VALUE> 1,097,206,076<F1>
<RECEIVABLES> 7,437,558<F1>
<ASSETS-OTHER> 19,336<F1>
<OTHER-ITEMS-ASSETS> 1,716<F1>
<TOTAL-ASSETS> 1,104,664,686<F1>
<PAYABLE-FOR-SECURITIES> 915,411<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,103,345<F1>
<TOTAL-LIABILITIES> 4,018,756<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 731,296,201<F1>
<SHARES-COMMON-STOCK> 30,922,008<F1>
<SHARES-COMMON-PRIOR> 25,278,342<F1>
<ACCUMULATED-NII-CURRENT> 884,964<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 49,624,778<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 318,839,987<F1>
<NET-ASSETS> 1,100,645,930<F1>
<DIVIDEND-INCOME> 3,554,555<F1>
<INTEREST-INCOME> 3,570,830<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (6,170,805)<F1>
<NET-INVESTMENT-INCOME> 954,580<F1>
<REALIZED-GAINS-CURRENT> 51,244,120<F1>
<APPREC-INCREASE-CURRENT> 142,711,097<F1>
<NET-CHANGE-FROM-OPS> 194,909,797<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (500,000)<F1>
<DISTRIBUTIONS-OF-GAINS> (74,450,000)<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 19,386,978<F1>
<NUMBER-OF-SHARES-REDEEMED> (16,484,716)<F1>
<SHARES-REINVESTED> 2,741,404<F1>
<NET-CHANGE-IN-ASSETS> 286,334,864<F1>
<ACCUMULATED-NII-PRIOR> 443,996<F1>
<ACCUMULATED-GAINS-PRIOR> 72,817,047<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,570,603<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6,173,807<F1>
<AVERAGE-NET-ASSETS> 904,267,151<F1>
<PER-SHARE-NAV-BEGIN> 32.21<F1>
<PER-SHARE-NII> 0.04<F1>
<PER-SHARE-GAIN-APPREC> 6.24<F1>
<PER-SHARE-DIVIDEND> (0.02)<F1>
<PER-SHARE-DISTRIBUTIONS> (2.88)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 35.59<F1>
<EXPENSE-RATIO> 0.70<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the fund as a whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 10
<NAME> ANCHOR SERIES TRUST GROWTH AND INCOME
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 35,321,619<F1>
<INVESTMENTS-AT-VALUE> 52,175,828<F1>
<RECEIVABLES> 108,457<F1>
<ASSETS-OTHER> 3,473<F1>
<OTHER-ITEMS-ASSETS> 2,665<F1>
<TOTAL-ASSETS> 52,290,423<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 100,784<F1>
<TOTAL-LIABILITIES> 100,784<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 28,239,116<F1>
<SHARES-COMMON-STOCK> 2,472,683<F1>
<SHARES-COMMON-PRIOR> 2,591,557<F1>
<ACCUMULATED-NII-CURRENT> 314,011<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 6,782,303<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 16,854,209<F1>
<NET-ASSETS> 52,189,639<F1>
<DIVIDEND-INCOME> 666,453<F1>
<INTEREST-INCOME> 46,336<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (376,772)<F1>
<NET-INVESTMENT-INCOME> 336,017<F1>
<REALIZED-GAINS-CURRENT> 6,821,664<F1>
<APPREC-INCREASE-CURRENT> 5,370,411<F1>
<NET-CHANGE-FROM-OPS> 12,528,092<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (400,000)<F1>
<DISTRIBUTIONS-OF-GAINS> (1,830,000)<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,003,191<F1>
<NUMBER-OF-SHARES-REDEEMED> (1,253,473)<F1>
<SHARES-REINVESTED> 131,408<F1>
<NET-CHANGE-IN-ASSETS> 7,772,979<F1>
<ACCUMULATED-NII-PRIOR> 377,994<F1>
<ACCUMULATED-GAINS-PRIOR> 1,790,639<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 331,720<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 376,782<F1>
<AVERAGE-NET-ASSETS> 47,388,603<F1>
<PER-SHARE-NAV-BEGIN> 17.14<F1>
<PER-SHARE-NII> 0.14<F1>
<PER-SHARE-GAIN-APPREC> 4.80<F1>
<PER-SHARE-DIVIDEND> (0.17)<F1>
<PER-SHARE-DISTRIBUTIONS> (0.80)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 21.11<F1>
<EXPENSE-RATIO> 0.80<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the fund as a whole
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 11
<NAME> ANCHOR SERIES TRUST FOREIGN SECURITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998<F1>
<PERIOD-END> DEC-31-1998<F1>
<INVESTMENTS-AT-COST> 25,857,469<F1>
<INVESTMENTS-AT-VALUE> 29,706,789<F1>
<RECEIVABLES> 80,483<F1>
<ASSETS-OTHER> 3,523<F1>
<OTHER-ITEMS-ASSETS> 790<F1>
<TOTAL-ASSETS> 29,791,585<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 90,363<F1>
<TOTAL-LIABILITIES> 90,363<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 27,810,118<F1>
<SHARES-COMMON-STOCK> 2,779,515<F1>
<SHARES-COMMON-PRIOR> 3,170,352<F1>
<ACCUMULATED-NII-CURRENT> 38,059<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 0<F1>
<OVERDISTRIBUTION-GAINS> 1,967,982<F1>
<ACCUM-APPREC-OR-DEPREC> 3,821,027<F1>
<NET-ASSETS> 29,701,222<F1>
<DIVIDEND-INCOME> 603,179<F1>
<INTEREST-INCOME> 54,906<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (488,039)<F1>
<NET-INVESTMENT-INCOME> 170,046<F1>
<REALIZED-GAINS-CURRENT> (245,632)<F1>
<APPREC-INCREASE-CURRENT> 3,542,783<F1>
<NET-CHANGE-FROM-OPS> 3,467,197<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (520,000)<F1>
<DISTRIBUTIONS-OF-GAINS> (3,725,000)<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,365,941<F1>
<NUMBER-OF-SHARES-REDEEMED> (2,209,336)<F1>
<SHARES-REINVESTED> 452,558<F1>
<NET-CHANGE-IN-ASSETS> (6,447,034)<F1>
<ACCUMULATED-NII-PRIOR> 440,430<F1>
<ACCUMULATED-GAINS-PRIOR> 1,950,233<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 297,272<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 488,102<F1>
<AVERAGE-NET-ASSETS> 33,030,272<F1>
<PER-SHARE-NAV-BEGIN> 11.40<F1>
<PER-SHARE-NII> 0.06<F1>
<PER-SHARE-GAIN-APPREC> 0.92<F1>
<PER-SHARE-DIVIDEND> (0.21)<F1>
<PER-SHARE-DISTRIBUTIONS> (1.48)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.69<F1>
<EXPENSE-RATIO> 1.50<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the fund as a whole
</FN>
</TABLE>
