<PAGE>
AMERICAN VARIABLE INSURANCE SERIES
JANUARY 31, 1997 SUPPLEMENT TO PROSPECTUS DATED APRIL 1, 1996
The listing of the Series' primary individual portfolio counselors appearing
on page 13 has been amended. The new listing appears below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
YEARS OF EXPERIENCE AS
PORTFOLIO COUNSELOR (AND RESEARCH) WITH CAPITAL
PROFESSIONAL, IF RESEARCH AND
PORTFOLIO APPLICABLE) FOR THE FUNDS MANAGEMENT
COUNSELORS INDICATED COMPANY OR TOTAL
FOR THE SERIES PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James K. Dunton Senior Vice President of the Series. Growth-Income Fund--since the fund 34 34
Senior Vice President and Director, began operations in 1984
Capital Research and Management
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President of the Series. Asset Allocation Fund--since the fund 29 45
Senior Vice President and Director, began operations in 1989;
Capital Research and Management Bond Fund--since the fund began
Company operations in 1996;
U.S. Government Fund--since the fund
began operations in 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Claudia P. Huntington Vice President of the Series. Growth-Income Fund--3 years (plus 5 years 19 21
Senior Vice President, as a research professional prior to becoming
Capital Research Company* a portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
John H. Smet Vice President of the Series. Bond Fund--since the fund began 13 15
Vice President, Capital Research and operations in 1996;
Management Company U.S. Government Fund--5 years
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy D. Armour Senior Vice President, and Director, Asset Allocation Fund--less than one year 13 13
Capital Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
David C. Barclay Executive Vice President, Capital High-Yield Bond Fund--4 years 9 16
Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Martial Chaillet Senior Vice President, Capital International Fund--4 years 25 25
Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Director, Growth Fund--3 years (plus 5 years as a 26 26
Capital Research and Management research professional prior to becoming a
Company portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President and Director, Growth Fund--10 years; 20 25
Capital Research and Management Growth-Income Fund--3 years
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Alwyn Heong Vice President, Capital International Fund--less than one year 4 4
Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Robert W. Lovelace Executive Vice President and Director, International Fund--3 years 12 12
Capital Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Director, Growth-Income Fund--7 years (plus 21 25
Capital Research and Management 1 year as a research professional prior to
Company becoming a portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
Donald D. O'Neal Vice President, Capital Research and Growth Fund--6 years (plus 4 years as a 11 11
Management Company research professional prior to becoming a
portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
Victor M. Parachini Senior Vice President, Capital Asset Allocation Fund--less than one year 21 34
Research and Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President, Capital Bond Fund--since the fund began 19 30
Research and Management Company operations in 1996;
High-Yield Bond Fund--9 years
- ------------------------------------------------------------------------------------------------------------------------------------
Susan M. Tolson Vice President, Capital Research High-Yield Bond Fund--2 years 7 8
Company* (plus 2 years as a research professional prior
to becoming a portfolio counselor for the fund)
</TABLE>
* Company affiliated with Capital Research and Management Company.
PLEASE KEEP THIS SUPPLEMENT WITH YOUR COPY OF THE PROSPECTUS.
<PAGE>
THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE PUBLIC OFFERING
AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH
TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND.
/s/ Chad L. Norton
Chad L. Norton
Secretary
SEC. File Nos. 2-86838
811-3857
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement
Under
the Securities Act of 1933
Post-Effective Amendment No. 22
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 22
AMERICAN VARIABLE INSURANCE SERIES
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, CA 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
Chad L. Norton
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071
(name and address of agent for service)
Copies to:
Cary I. Klafter, Esq.
Morrison & Foerster
345 California Street
San Francisco, California 94104
(Counsel for the Registrant)
The Registrant has filed a declaration pursuant to rule 24f-2
registering an indefinite number of shares under the Securities Act of 1933.
On January 29, 1996, it filed its 24f-2 notice for fiscal 1995.
Approximate date of proposed public offering:
It is proposed that this filing become effective on April 1, 1996, pursuant
to paragraph (b) of rule 485.
AMERICAN VARIABLE INSURANCE SERIES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER OF CAPTIONS IN PROSPECTUS (PART "A")
PART "A" OF FORM N-1A
<S> <C> <C>
1. COVER PAGE COVER PAGE
2. SYNOPSIS N/A
3. FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS
4. GENERAL DESCRIPTION OF REGISTRANT INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
5. MANAGEMENT OF THE FUND FINANCIAL HIGHLIGHTS; FUND ORGANIZATION AND MANAGEMENT
6. CAPITAL STOCK AND OTHER SECURITIES INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS; FUND
ORGANIZATION AND MANAGMENT; DIVIDENDS,DISTRIBUTIONS AND
TAXES
7. PURCHASE OF SECURITIES BEING OFFERED PURCHASES AND REDEMPTIONS OF SHARES
8. REDEMPTION OR REPURCHASE PURCHASES AND REDEMPTIONS OF SHARES
9. LEGAL PROCEEDINGS N/A
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER OF CAPTIONS IN STATEMENT OF
PART "B" OF FORM N-1A ADDITIONAL INFORMATION (PART "B")
<S> <C> <C>
10. COVER PAGE COVER
11. TABLE OF CONTENTS TABLE OF CONTENTS
12. GENERAL INFORMATION AND HISTORY NONE
13. INVESTMENT OBJECTIVES AND POLICIES INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
(PART "A")
14. MANAGEMENT OF THE REGISTRANT SERIES OFFICERS AND TRUSTEES
15. CONTROL PERSONS AND PRINCIPAL HOLDERS SERIES OFFICERS AND TRUSTEES
OF SECURITIES
16. INVESTMENT ADVISORY AND OTHER SERVICES INVESTMENT ADVISORY AND SERVICE AGREEMENT
17. BROKERAGE ALLOCATION AND OTHER PRACTICES EXECUTION OF PORTFOLIO TRANSACTIONS
18. CAPITAL STOCK AND OTHER SECURITIES NONE
19. PURCHASE, REDEMPTION AND PRICING OF PURCHASES AND REDEMPTIONS OF SHARES (PART "A");
SECURITIES BEING OFFERED
20. TAX STATUS DIVIDENDS, DISTRIBUTIONS AND TAXES
21. UNDERWRITERS N/A
22. CALCULATION OF PERFORMANCE DATA FINANCIAL HIGHLIGHTS
23. FINANCIAL STATEMENTS FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
ITEM IN PART "C"
<S> <C>
24. FINANCIAL STATEMENTS AND EXHIBITS
25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
26. NUMBER OF HOLDERS OF SECURITIES
27. INDEMNIFICATION
28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
29. PRINCIPAL UNDERWRITERS
30. LOCATION OF ACCOUNTS AND RECORDS
31. MANAGEMENT SERVICES
32. UNDERTAKINGS
SIGNATURE PAGE
</TABLE>
<PAGE>
PROSPECTUS
AMERICAN VARIABLE INSURANCE SERIES (r)
April 1, 1996
(as amended January 31, 1997)
AMERICAN VARIABLE INSURANCE SERIES
333 South Hope Street
Los Angeles, California 90071
(213) 486-9200
American Variable Insurance Series (the "Series") is a fully managed,
diversified, open-end investment company. The Series consists of eight funds,
each of which has its own investment objective(s) and policies.
Shares of the Series are offered only to insurance company separate accounts
to serve as the funding vehicle for certain variable annuity and life
insurance contracts ("Contract" or "Contracts").
THE CONTRACTS INVOLVE CERTAIN FEES AND EXPENSES NOT DESCRIBED IN THIS
PROSPECTUS AND ALSO MAY INVOLVE CERTAIN RESTRICTIONS OR LIMITATIONS ON THE
ALLOCATION OF PURCHASE PAYMENTS OR CONTRACT VALUES TO ONE OR MORE FUNDS OF THE
SERIES. IN PARTICULAR, CERTAIN FUNDS MAY NOT BE AVAILABLE IN CONNECTION WITH A
PARTICULAR CONTRACT. SEE THE APPLICABLE CONTRACT PROSPECTUS FOR INFORMATION
REGARDING FEES AND EXPENSES OF THE CONTRACT AND ANY APPLICABLE RESTRICTIONS OR
LIMITATIONS.
The GROWTH FUND seeks growth of capital by investing primarily in common
stocks or securities with common stock characteristics, such as convertible
preferred stocks, which demonstrate the potential for appreciation.
The INTERNATIONAL FUND seeks long-term growth of capital by investing
primarily in securities of issuers domiciled outside the United States.
The GROWTH-INCOME FUND seeks growth of capital and income by investing
primarily in common stocks or other securities which demonstrate the potential
for appreciation and/or dividends.
The ASSET ALLOCATION FUND seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that can include common stocks and other
equity-type securities, bonds and other intermediate and long-term fixed-
income securities and money market instruments in any combination.
The HIGH-YIELD BOND FUND seeks high current income and secondarily seeks
capital appreciation by investing primarily in intermediate and long-term
corporate obligations, with emphasis on higher yielding, higher risk, lower
rated or unrated securities. IN ADDITION TO OTHER RISKS, HIGH-YIELD, HIGH-RISK
BONDS (ALSO KNOWN AS "JUNK BONDS") ARE SUBJECT TO GREATER FLUCTUATIONS IN
VALUE AND RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER
THAN ARE INVESTMENTS IN LOWER YIELDING, HIGHER RATED BONDS.
The BOND FUND seeks to provide as high a level of current income as is
consistent with the preservation of capital by investing primarily in fixed-
income securities.
The U.S. GOVERNMENT/AAA-RATED SECURITIES FUND seeks a high level of current
income consistent with prudent investment risk and preservation of capital by
investing primarily in a combination of securities guaranteed by the U.S.
Government and other debt securities rated AAA or Aaa.
The CASH MANAGEMENT FUND seeks high current yield while preserving capital
by investing in a diversified selection of high-quality money market
instruments.
This prospectus sets forth concisely the information an investor should know
before investing in the Series. You may obtain the statement of additional
information dated April 1, 1996, which contains the Series' financial
statements, without charge, by writing to the Secretary of the Series at the
above address or telephoning 800/421-0180.
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS. THE LIKELIHOOD
OF LOSS IS GREATER IF YOU INTEND TO INVEST FOR A SHORTER PERIOD OF
TIME. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR INSURED, OR GUARANTEED BY, THE U.S. GOVERNMENT,
ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER
AGENCY, ENTITY OR PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF THE
APPLICABLE CONTRACT. THIS PROSPECTUS AND THE APPLICABLE CONTRACT PROSPECTUS
SHOULD BE READ CAREFULLY AND THEN RETAINED FOR FUTURE REFERENCE.
The date of this prospectus is April 1, 1996 (as amended
January 31, 1997)
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following condensed financial information for 1991 through 1995 has
been derived from financial statements which have been audited by Price
Waterhouse LLP, independent accountants. The information for the years prior
to 1991 was audited by other independent accountants. This information
should be read in conjunction with the financial statements and accompanying
notes which are included in the statement of additional information.
<TABLE>
<CAPTION>
Net realized Total
Net asset & unrealized income Dividends Distributions Net asset Net assets,
Period value, Net gain (loss) from from net from net value, end of
ended beginning investment on investment investment realized Total end of Total period
11/30 of period income investments operations income gains distributions period return (in millions)
- ------ --------- ---------- ------------ ---------- ---------- ------------- ------------- --------- ------ -------------
Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $ 9.72 $ .06 $ 1.88 $ 1.94 $ (.03) -- $ (.03) $11.63 20.11% $ 20
1986 11.63 .10 4.30 4.40 (.13) $ (.24) (.37) 15.66 38.77 44
1987 15.66 .14 (.78) (.64) (.11) (.34) (.45) 14.57 (4.34) 99
1988 14.57 .33 2.85 3.18 (.28) (.61) (.89) 16.86 22.34 48
1989 16.86 .49 6.01 6.50 (.45) -- (.45) 22.91 38.87 173
1990 22.91 .54 (2.27) (1.73) (.56) (.64) (1.20) 19.98 (7.87) 304
1991 19.98 .41 4.48 4.89 (.47) (.22) (.69) 24.18 24.90 700
1992 24.18 .29 4.25 4.54 (.31)/2/ -- (.31) 28.41 18.90 1,212
1993 28.41 .25 4.13 4.38 (.24) (.21) (.45) 32.34 15.59 1,737
1994 32.34 .24 .69 .93 (.24) (1.09) (1.33) 31.94 2.92 2,027
1995 31.94 .33 10.63 10.96 (.29) (.80) (1.09) 41.81 35.35 3,154
- --------------------------------------------------------------------------------------------------------------------------------
International Fund/3/
1990 $10.00 $ .11 $ (.62) $ (.51) $ (.04) -- $ (.04) $ 9.45 (5.08)% $ 66
1991 9.45 .22 .59 .81 (.24) -- (.24) 10.02 8.67 197
1992 10.02 .19 (.09) .10 (.21) $ (.02) (.23) 9.89 .90 360
1993 9.89 .17 2.50 2.67 (.16) -- (.16) 12.40 27.20 840
1994 12.40 .25 1.04 1.29 (.20) (.22) (.42) 13.27 10.48 1,405
1995 13.27 .34 1.02 1.36 (.33) (.41) (.74) 13.89 10.78 1,703
- --------------------------------------------------------------------------------------------------------------------------------
Growth-Income Fund
1985 $10.54 $ .20 $ 3.28 $ 3.48 $ (.07) -- $ (.07) $13.95 33.13% $ 42
1986 13.95 .41 3.91 4.32 (.48) $ (.33) (.81) 17.46 32.10 129
1987 17.46 .47 (1.87) (1.40) (.46) (.08) (.54) 15.52 (8.59) 217
1988 15.52 .72 2.66 3.38 (.68) (.18) (.86) 18.04 22.13 102
1989 18.04 .78 3.93 4.71 (.74) (.58) (1.32) 21.43 27.32 305
1990 21.43 .82 (1.91) (1.09) (.86) (.25) (1.11) 19.23 (5.27) 535
1991 19.23 .75 2.63 3.38 (.79) (.10) (.89) 21.72 17.83 1,022
1992 21.72 .65 2.74 3.39 (.67) (.27) (.94) 24.17 15.90 1,704
1993 24.17 .63 2.12 2.75 (.63) (.28) (.91) 26.01 11.63 2,436
1994 26.01 .68 .14 .82 (.65) (.88) (1.53) 25.30 3.21 2,740
1995 25.30 .73 7.20 7.93 (.73) (1.03) (1.76) 31.47 33.14 3,953
- --------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund/5/
1989 $10.00 $ .08 $ .10 $ .18 $ (.01) -- $ (.01) $10.17 1.70% $ 33
1990 10.17 .50 (.75) (.25) (.42) -- (.42) 9.50 (2.34) 106
1991 9.50 .53 1.11 1.64 (.55) -- (.55) 10.59 17.63 194
1992 10.59 .48 .94 1.42 (.49) $ (.05) (.54) 11.47 13.69 359
1993 11.47 .51 .67 1.18 (.49) (.15) (.64) 12.01 10.59 578
1994 12.01 .51 (.57) (.06) (.52) (.18) (.70) 11.25 (.54) 637
1995 11.25 .50 2.69 3.19 (.50) (.17) (.67) 13.77 29.45 870
- --------------------------------------------------------------------------------------------------------------------------------
High-Yield Bond Fund
1985 $10.96 $ .81 $ 1.54 $ 2.35 $ (.29) -- $ (.29) $13.02 21.79% $ 23
1986 13.02 1.35 1.30 2.65 (1.98) $ (.20) (2.18) 13.49 22.64 53
1987 13.49 1.35 (.94) .41 (1.36) (.32) (1.68) 12.22 2.96 70
1988 12.22 1.26 .68 1.94 (1.33) (.17) (1.50) 12.66 16.95 26
1989 12.66 1.22 .10 1.32 (1.16) -- (1.16) 12.82 10.85 50
1990 12.82 1.33 (1.02) .31 (1.30) -- (1.30) 11.83 2.49 58
1991 11.83 1.17 1.78 2.95 (1.25) -- (1.25) 13.53 26.22 107
1992 13.53 1.10 .62 1.72 (1.08) -- (1.08) 14.17 13.14 197
1993 14.17 1.09 1.20 2.29 (1.10) (.19) (1.29) 15.17 17.09 379
1994 15.17 1.27 (2.07) (.80) (1.23) (.25) (1.48) 12.89 (5.71) 390
1995 12.89 1.32 1.10 2.42 (1.32) -- (1.32) 13.99 19.81 534
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities Fund/6/
1986 $10.00 $ .53 $ 1.45 $ 1.98 $ (.36) -- $ (.36) $11.62 19.65% $ 32
1987 11.62 .85 (1.21) (.36) (.79) -- (.79) 10.47 (3.17) 47
1988 10.47 .93 .02 .95 (.97) -- (.97) 10.45 9.50 28
1989 10.45 .78 .30 1.08 (.79) -- (.79) 10.74 10.82 78
1990 10.74 .83 (.11) .72 (.80) -- (.80) 10.66 7.11 126
1991 10.66 .77 .58 1.35 (.79) -- (.79) 11.22 13.24 240
1992 11.22 .75 .32 1.07 (.76) -- (.76) 11.53 9.83 360
1993 11.53 .74 .68 1.42 (.75) $ (.05) (.80) 12.15 12.65 505
1994 12.15 .76 (1.30) (.54) (.74) (.07) (.81) 10.80 (4.58) 463
1995 10.80 .82 .71 1.53 (.81) -- (.81) 11.52 14.73 542
- --------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund
1985 $10.77 $ .78 -- $ .78 $ (.43) -- $ (.43) $11.12 7.41% $ 13
1986 11.12 .67 $ (.02) .65 (1.12) -- (1.12) 10.65 6.30 19
1987 10.65 .54 .08 .62 (.54) -- (.54) 10.73 6.01 57
1988 10.73 .60 .11 .71 (.56) -- (.56) 10.88 6.88 31
1989 10.88 .81 .12 .93 (.81) -- (.81) 11.00 8.90 58
1990 11.00 .71 .13 .84 (.70) -- (.70) 11.14 7.91 143
1991 11.14 .62 .01 .63 (.66) -- (.66) 11.11 5.84 163
1992 11.11 .35 .01 .36 (.43) -- (.43) 11.04 3.31 197
1993 11.04 .29 -- .29 (.31) -- (.31) 11.02 2.67 206
1994 11.02 .37 .02 .39 (.32) -- (.32) 11.09 3.59 221
1995 11.09 .63 (.02) .61 (.59) -- (.59) 11.11 5.65 193
<CAPTION>
Ratio of Ratio
expenses of net
to income to
Period average average Portfolio
ended net net turnover
11/30 assets assets rate
- ------- ---------- ----------- ----------
<S> <C> <C> <C>
1985 .83% .78% 28.4%
1986 .71 .76 27.4
1987 .63 .97 14.0
1988 .72 1.72 7.1/1/
1989 .60 2.97 29.2
1990 .59 3.00 16.8
1991 .56 1.94 9.8
1992 .53 1.15 11.2
1993 .50 .86 20.4
1994 .49 .78 29.6
1995 .47 .92 35.47
- ------------------------------------------
1990 1.03%/4/ 3.18%/4/ 4.5%
1991 1.04 2.62 8.2
1992 1.00 2.11 16.7
1993 .96 1.75 17.7
1994 .80 2.03 19.7
1995 .75 2.64 24.66
- ------------------------------------------
1985 .73% 2.88% 25.6%
1986 .61 3.08 11.2
1987 .59 2.85 6.8
1988 .67 3.59 14.3/1/
1989 .58 4.94 16.7
1990 .56 4.77 9.7
1991 .56 3.80 11.1
1992 .52 3.01 13.6
1993 .49 2.66 24.9
1994 .47 2.72 29.3
1995 .44 2.70 26.91
- ------------------------------------------
1989 .59%/2/ 5.78%/2/ --
1990 .64 6.70 14.4%
1991 .59 5.56 15.1
1992 .57 4.73 19.7
1993 .55 4.66 19.0
1994 .53 4.55 36.1
1995 .52 4.11 39.89
- ------------------------------------------
1985 .87% 11.71% 67.7%
1986 .67 11.59 56.3
1987 .63 10.89 61.9
1988 .77 10.62 23.6/1/
1989 .72 12.30 28.2
1990 .68 11.17 22.7
1991 .63 9.81 18.1
1992 .59 8.88 47.4
1993 .56 8.18 34.1
1994 .54 9.37 38.5
1995 .54 10.12 31.73
- ------------------------------------------
1986 .64% 6.86% 18.7%
1987 .67 8.24 105.6
1988 .77 8.32 47.5/1/
1989 .66 8.61 14.5
1990 .61 8.58 24.0
1991 .58 7.91 27.1
1992 .57 7.08 40.0
1993 .55 6.42 21.7
1994 .54 6.69 45.2
1995 .54 7.37 30.11
- ------------------------------------------
1985 1.07% 6.99% --
1986 .85 5.82 --
1987 .68 5.90 --
1988 .76 6.75 --
1989 .68 8.26 --
1990 .60 7.48 --
1991 .58 5.65 --
1992 .53 3.24 --
1993 .51 2.57 --
1994 .49 3.60 --
1995 .49 5.37 --
</TABLE>
- ------
1. Percentages are exclusive of the redemption in kind which occurredMarch 29,
1988.
4. Annualized
5. Commenced operations August 1,
2. Amount includes net realized 1989.
short-term gains treated as net 6. Commenced operations December 1,
investment income for federal 1985.
income tax purposes. No information is given for the Bond
3. Commenced operations May 1, 1990. Fund because it had not yet commenced
operations at November 30, 1995.
2
<PAGE>
- --------------------------------------------------------------------------------
THE FUNDS The Series consists of eight funds,
INVESTMENT each representing a separate fully managed diver-
OBJECTIVES AND sified portfolio of securities. The eight funds
POLICIES OF THE are the Growth Fund, the International Fund, the
FUNDS Growth-Income Fund, the Asset Allocation Fund,
the High-Yield Bond Fund, the Bond Fund, the U.S.
The Series consists Government/AAA-Rated Securities Fund and the Cash
of Management Fund. The Board of Trustees may estab-
eight funds, each lish additional funds in the future. The invest-
with ment objective(s) and policies of each fund are
its own investment discussed below. Investment policy limits as
objective(s) and stated below are measured at the time of pur-
policies. chase.
Shares of the Series are currently offered only
to separate accounts of various insurance compa-
nies to serve as the underlying investment for
both variable annuity and variable life insurance
Contracts. All such shares may be purchased or
redeemed by the separate accounts without any
sales or redemption charges at net asset value.
Due to differences in tax treatment or other con-
siderations, the interests of various Contract
owners participating in a fund might at some time
be in conflict. The Board of Trustees will moni-
tor for any material conflicts and determine what
action, if any, should be taken.
INVESTMENT RESTRICTIONS Each fund has certain in-
vestment restrictions that are described in the
statement of additional information. The invest-
ment restrictions and the objective(s) of each
fund cannot be changed without shareholder ap-
proval. All other investment practices may be
changed by the Series' Board of Trustees.
The Growth Fund GROWTH FUND The investment objective of the
seeks Growth Fund is growth of capital. Whatever cur-
to provide you with rent income is generated by the fund is likely to
growth of capital. be incidental to the objective of capital growth.
Ordinarily, the fund seeks to achieve this objec-
tive by investing primarily in common stocks or
securities with common stock characteristics.
When the outlook for common stocks is not consid-
ered promising, for temporary defensive purposes,
a substantial portion of the assets may be in-
vested in securities of the U.S. Government, its
agencies and instrumentalities, cash, and money
market instruments. See "Certain Securities and
Investment Techniques" below.
The fund's assets may be invested in securities
of non-U.S. issuers, which are generally denomi-
nated in currencies other than the U.S. dollar,
although there is no requirement that the fund
maintain investments in non-U.S. issuers. See
"Certain Securities and Investment Techniques--
Investing Around the World" below.
Up to 10% of the fund's assets may be invested in
straight debt securities rated BB or below by
Standard & Poor's Corporation and Ba or below by
Moody's Investors Services, Inc. or in unrated
securities that are determined to be of equiva-
lent quality, provided the fund's investment ad-
viser, Capital Research and Management Company,
determines that these securities have character-
istics similar to the equity securities eligible
for purchase by the fund. These securities are
commonly referred to as "junk bonds" or "high-
yield, high-risk bonds," carry a higher degree of
investment risk than higher rated bonds and are
considered speculative. See the Appendix for a
further description of the various bond ratings.
See "High-Yield Bond Fund--Risks of Investing in
High-Yield, High-Risk Securities" below and the
statement of additional information. As of Novem-
ber 30, 1995, the last day of the fund's fiscal
year, the portfolio did not contain any bonds.
3
<PAGE>
- --------------------------------------------------------------------------------
The International INTERNATIONAL FUND The investment objective of
Fund aims to the International Fund is to achieve long-term
provide you with growth of capital by investing primarily in secu-
long-term growth rities of issuers domiciled outside the United
ofcapital by States. The fund's investment approach is based
investingin on the belief that economic and political devel-
securities opments have helped to create new opportunities
ofissuers outside the U.S.
domiciledoutside
the U.S.
The fund may also invest in securities through
depositary receipts which may be denominated in
various currencies. For example, the fund may
purchase American Depositary Receipts which are
U.S. dollar denominated securities designed for
use in the U.S. securities markets which repre-
sent and may be converted to the underlying secu-
rity.
When prevailing market, economic, political or
currency conditions warrant, the fund may invest
in securities convertible into common stocks,
straight debt securities (generally rated in the
top three quality categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or
determined to be of equivalent quality by Capital
Research and Management Company), government se-
curities, or nonconvertible preferred stocks;
however, up to 5% of the fund's assets may be in-
vested in lower rated straight debt securities
(including securities commonly referred to as
"junk bonds" or "high-yield, high-risk bonds") or
in unrated securities that are determined to be
of equivalent quality. High-yield, high-risk
bonds carry a higher degree of investment risk
than higher rated bonds and are considered specu-
lative. See the Appendix for a description of the
various bond ratings. These securities may also
be issued by non-U.S. entities.
Under normal circumstances, the fund will invest
at least 65% of its assets in equity securities
(including depositary receipts) of issuers domi-
ciled outside the U.S. The fund may at times hold
a portion of its assets in various currencies or
in cash equivalents which may be denominated in
U.S. dollars or other currencies (including U.S.
Government securities, certificates of deposit,
time deposits, commercial paper, bankers' accept-
ances and other high-quality short-term debt se-
curities). Additionally, for temporary defensive
purposes the fund may at times maintain all or
any part of its assets in cash and cash equiva-
lents.
Investments may be made from time to time in is-
suers domiciled in, or governments of, developing
countries. The fund's investment adviser, Capital
Research and Management Company, currently does
not intend to invest more than 20% of the fund's
total assets (taken at cost) in issuers domiciled
in, or governments of, developing countries. See
"Certain Securities and Investment Techniques--
Investing Around the World."
The Growth-Income GROWTH-INCOME FUND The investment objective of
Fund seeks to the Growth-Income Fund is growth of capital and
provide you with income. In the selection of securities for in-
capital growth and vestment, the possibilities of appreciation and
income. potential dividends are given more weight than
current yield. Ordinarily, the fund will invest
primarily in common stocks. But the fund may in-
vest in other types of securities, including
other equity-type securities (such as convertible
bonds and preferred stocks), bonds (and other
types of fixed-income securities) and money mar-
ket instruments, to the extent consistent with
its investment objective.
Up to 5% of the fund's assets may be invested in
straight debt securities rated BB or below by
Standard & Poor's Corporation and Ba or below by
Moody's Investors Services, Inc. or in unrated
securities that are determined to be of equiva-
lent quality by Capital Research and Management
Company. These securities are commonly referred
to as "junk bonds" or "high-yield, high-risk
bonds," carry a higher degree of investment risk
than higher rated bonds and are considered specu-
lative. See the Appendix for a description of the
various bond ratings.
4
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Up to 10% of the fund's assets may be invested in
the equity securities of issuers domiciled
outside the U.S., provided those securities are
either held through depositary receipts which are
U.S. dollar denominated or are traded on the New
York Stock Exchange. Since the fund limits its
investments in non-U.S. securities as described
above, the fund has no current intention to
engage in forward currency transactions. See
"Investing Around the World."
The Asset ASSET ALLOCATION FUND The investment objective of
Allocation Fund the Asset Allocation Fund is high total return
aims to provide you (including income and capital gains) consistent
with high total with preservation of capital over the long-term.
return and The fund seeks to achieve its objective by in-
preservation of vesting in a diversified portfolio that can in-
capital over the clude common stocks and other equity-type securi-
long-term. ties (such as convertible bonds and preferred
stocks), bonds and other intermediate and long-
term fixed income securities, and money market
instruments (debt securities maturing in one year
or less).
Capital Research and Management Company will de-
termine the relative mix of equities, fixed-in-
come securities and money market instruments for
the fund's portfolio. The determination will be
based on its view of long-term economic and mar-
ket trends and the relative risks and opportuni-
ties for long-term total return of the different
classes of assets. Under normal conditions, Capi-
tal Research and Management Company expects (but
is not required) to maintain an investment mix
falling within the following ranges: 40% to 80%
in equities; 20% to 50% in fixed-income securi-
ties, and 0% to 40% in money market instruments.
Capital Research and Management Company does not
intend to make frequent shifts within these broad
ranges. Rather it intends in normal situations to
make any shifts in the fund's asset allocation
gradually over time based on its views of long-
term trends and conditions.
Up to 10% of the fund's assets may be invested in
the equity securities of issuers domiciled out-
side the U.S., provided those securities are ei-
ther held through depositary receipts which are
U.S. dollar denominated or are traded on the New
York Stock Exchange. Since the fund limits its
investments in non-U.S. securities as described
above, the fund has no current intention to en-
gage in forward currency transactions. See "Cer-
tain Securities and Investment Techniques--In-
vesting Around the World."
The fund's fixed-income investments will consist
primarily of "investment grade" bonds; that is,
bonds that are rated BBB or better by Standard &
Poor's Corporation or Baa or better by Moody's
Investors Service, Inc., or that are unrated but
considered by Capital Research and Management
Company to be of equivalent credit quality. Up to
25% of the fund's fixed-income assets may be in-
vested in securities that are below investment
grade as defined above, including securities
rated as low as CC by S&P or Ca by Moody's. See
"High-Yield Bond Fund--Risks of Investing in
High-Yield, High-Risk Securities" below and the
statement of additional information. See the Ap-
pendix for a further description of the various
bond ratings. The fund's investments in non-U.S.
fixed-income securities will be concentrated in
securities issued or guaranteed as to principal
and interest by foreign governments or their
agencies or instrumentalities or by multinational
agencies. During the previous fiscal year, the
approximate monthly average percentages of the
Asset Allocation Fund's fixed-income net assets
based on the higher of the Moody's or S&P rating
categories were: Aaa/AAA --13.45%; Aa/AA --
0.15%; A/A -- 2.43%; Baa/BBB -- 5.09%; Ba/BB --
0.76%; B/B -- 1.80%; and Caa/CCC -- 0.18%. Non-
rated investments (including equity-type securi-
ties) and cash or cash equivalents amounted to
69.03% and 7.11%, respectively, of the fund's as-
sets.
5
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The High-Yield Bond HIGH-YIELD BOND FUND The primary investment ob-
Fund seeks to jective of the High-Yield Bond Fund is high cur-
provide you with rent income and its secondary investment objec-
high current income tive is capital appreciation. Under normal market
and, secondarily, conditions the fund will be invested in fixed-in-
capital come securities, with emphasis on higher yield-
appreciation. ing, higher risk, lower rated or unrated corpo-
rate bonds. These "high-yield, high-risk bonds"
typically are subject to greater market fluctua-
tions and risk of loss of income and principal
due to default by the issuer than are lower
yielding, higher rated bonds.
High-yield, high-risk bonds (also known as "junk
bonds") generally include any bonds rated Ba or
below by Moody's Investors Service, Inc. and BB
or below by Standard & Poor's Corporation or
unrated but determined to be of equivalent qual-
ity by Capital Research and Management Company.
Bonds rated Ba or BB or below are considered
speculative. The High-Yield Bond Fund may invest
without limitation in bonds rated as low as Ca by
Moody's or CC by S&P (or bonds that are unrated
but are determined to be of equivalent quality).
In addition, the fund may invest up to 10% of its
total assets in bonds rated C by Moody's or D by
S&P (or bonds that are unrated but are determined
to be of equivalent quality). See the Appendix
for a further description of the various bond
ratings. During the previous fiscal year, the ap-
proximate monthly average percentages of the
High-Yield Bond Fund's net assets based on the
higher of the Moody's or S&P rating categories
were: Aaa/AAA -- 7.27%; Baa/BBB -- 0.72%;
Ba/BB -- 26.16%; B/B --52.80%; and Caa/CCC --
5.30%. Non-rated investments (including equity-
type securities) and cash or cash equivalents
amounted to 1.77% and 5.98%, respectively, of the
fund's assets.
Up to 25% of the fund's assets may be invested in
securities of non-U.S. issuers, which are gener-
ally denominated in currencies other than the
U.S. dollar. See "Certain Securities and Invest-
ment Techniques--Investing Around the World" and
"Currency Transactions" below.
Under normal conditions the fund will invest pri-
marily in higher yielding obligations which may
include loan participations in addition to corpo-
rate bonds. The fund also may invest in securi-
ties of the U.S. Government, its agencies and in-
strumentalities, cash and money market instru-
ments. See "Certain Securities and Investment
Techniques" below. See also the statement of ad-
ditional information.
RISKS OF INVESTING IN HIGH-YIELD, HIGH-RISK
SECURITIES High-yield, high-risk bonds, also
known as "junk bonds," typically are subject to
greater market fluctuations and to greater loss
of income and principal due to the lower credit
quality of the issuer than are higher rated
bonds. Their values tend to be more sensitive to
adverse economic changes than lower yielding,
higher rated bonds. In addition, it may be more
difficult to dispose of, or to determine the
value of, high-yield, high-risk bonds.
High-yield, high-risk bonds can be very sensitive
to adverse economic changes. 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 in-
terest payment obligations, to meet projected fi-
nancial goals, and to obtain additional financ-
ing. If the issuer of a bond defaulted on its ob-
ligations to pay interest or principal, the fund
may incur losses or expenses in seeking recovery
of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected
to result in increased volatility of market
prices and yields of high-yield, high-risk bonds
and the fund's net asset value.
6
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High-yield, high-risk bonds may contain redemp-
tion or call provisions. If an issuer exercised
these provisions in a declining interest rate
market, the fund would have to replace the secu-
rity with a lower yielding security, resulting in
a decreased return for investors. Conversely, a
high-yield, high-risk bond's value will decrease
in a rising interest rate market, as will the
value of the fund's assets. If the fund experi-
ences unexpected net redemptions, this may force
it to sell high-yield, high-risk bonds without
regard to their investment merits, thereby de-
creasing the asset base upon which expenses can
be spread and possibly reducing the fund's rate
of return.
There may be little trading in the secondary mar-
ket for particular bonds, which may affect ad-
versely the fund's ability to value accurately or
dispose of such bonds. Adverse publicity and in-
vestor perceptions, whether or not based on fun-
damental analysis, may decrease the values and
liquidity of high-yield, high-risk bonds, espe-
cially in a thin market.
Capital Research and Management Company attempts
to reduce these risks through diversification of
the portfolio and by credit analysis of each is-
suer, as well as by monitoring broad economic
trends and corporate and legislative develop-
ments.
There can be, of course, no assurance that the
fund's investment objective will be realized or
that the net return on an investment in the fund
will equal or exceed that which could have been
obtained through other investment or savings ve-
hicles. Contract owners should carefully review
the investment objectives and policies of the
fund and consider their ability to assume the
risks involved before making any investment in
the fund.
The Bond Fund seeks BOND FUND The investment objective of the Bond
to provide you with Fund is to provide as high a level of current in-
high current income come as is consistent with the preservation of
while preserving capital. The fund invests in a broad variety of
yourcapital. fixed-income securities, including marketable
corporate debt securities, loan participations,
U.S. Government securities, mortgage-related se-
curities, other asset-backed securities and cash
or money market instruments. Normally, at least
65% of the fund's assets will be invested in
bonds. (For this purpose, bonds are considered
any debt securities having initial maturities in
excess of one year.) In addition, the fund may
invest up to 20% in preferred stocks.
At least 65% of the value of the fund's assets,
measured at the time of purchase, must be in-
vested in securities that are rated Baa or better
by Moody's Investors Service, Inc. or BBB or bet-
ter by Standard & Poor's Corporation (all ratings
discussed below refer to those assigned by these
two rating agencies) or, if not rated by either
of these rating agencies, determined by Capital
Research and Management Company as being of in-
vestment quality equivalent to securities rated
Baa/BBB or better. Securities rated Baa or BBB
have speculative characteristics. See the Appen-
dix for a description of the various bond rat-
ings.
At least 35% of the value of the fund's assets,
measured at the time of purchase, must be in-
vested in securities that are rated A or better
or, if not rated, determined as being of equiva-
lent quality.
Up to 35% of the assets of the fund may be in-
vested in debt securities rated Ba and BB or be-
low, or in unrated securities that are determined
to be of equivalent quality. These securities may
be rated as low as Ca by Moody's or CC by S&P.
Securities rated Ba and BB or below or unrated
securities that are determined to be of equiva-
lent quality (commonly known as "junk" or "high-
yield, high-risk" bonds) are subject to special
review before purchase. These bonds
7
<PAGE>
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are considered speculative and typically are sub-
ject to greater market fluctuations and risk of
loss of income and principal due to default by
the issuer than are investments in lower yield-
ing, higher-rated bonds. See "High-Yield Bond
Fund--Risks of Investing in High-Yield, High-Risk
Securities" above and the statement of additional
information.
The fund may invest in fixed-income securities of
corporations or governmental entities outside the
U.S.; however, no more than 20% of the fund's as-
sets will be invested in non-U.S. dollar denomi-
nated securities. The fund may purchase or sell
various currencies on either a spot or forward
basis in connection with non-U.S. dollar invest-
ments. See "Certain Securities and Investment
Techniques--Currency Transactions" below.
The fund may invest up to 20% of its assets in
issuers domiciled in, or governments of, develop-
ing countries. See "Certain Securities and In-
vestment Techniques--Investing Around the World"
and the statement of additional information.
The U.S. U.S. GOVERNMENT/AAA-RATED SECURITIES FUND The in-
Government/AAA- vestment objective of the U.S. Government/AAA-
Rated Securities Rated Securities Fund is a high level of current
Fund aims to income consistent with prudent investment risk
provide you with and preservation of capital. It seeks to achieve
high current income its objective by investing primarily in a combi-
while preserving nation of (i) securities guaranteed by the U.S.
your capital. Government (i.e., backed by the full faith and
credit of the United States) and (ii) other debt
securities (including corporate bonds) rated AAA
by Standard & Poor's Corporation or Aaa by
Moody's Investors Service, Inc. (or that have not
received a rating but are determined to be of
comparable quality by Capital Research and Man-
agement Company). The fund may purchase obliga-
tions of non-U.S. corporations or governmental
entities, provided they are dollar denominated
and highly liquid. Except when the fund is in a
temporary defensive investment position, at least
65% of its total assets will be invested in these
securities, including the securities held subject
to repurchase agreements.
The fund anticipates that it will invest in Gov-
ernment National Mortgage Association ("GNMA")
certificates, which are mortgage-backed securi-
ties representing part ownership of a pool of
mortgage loans on which timely payment of inter-
est and principal is guaranteed by the U.S. Gov-
ernment. The fund also may invest in securities
issued by U.S. Government agencies or instrumen-
talities that are not backed by the full faith
and credit of the U.S. Government; in short-term
debt securities of private issuers (including
certificates of deposit, bankers' acceptances,
and commercial paper rated A-1 by S&P or Prime-1
by Moody's); and in securities issued by finan-
cial institutions such as commercial banks, sav-
ings and loan associations, mortgage bankers and
securities broker-dealers which represent a di-
rect or indirect interest in a pool of mortgages.
See "Certain Securities and Investment Tech-
niques" below. See also the statement of addi-
tional information. The fund may not purchase any
security other than a U.S. Government security or
a short-term debt security described above, that
is not rated AAA by S&P or Aaa by Moody's (or
that has not received a rating but is determined
to be of comparable quality by Capital Research
and Management Company). However, if the rating
of a security currently being held by the fund is
reduced below AAA or Aaa the fund is not required
to dispose of the security.
8
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The Cash Management CASH MANAGEMENT FUND The investment objective of
Fund seeks to the Cash Management Fund is high current yield
provide you with while preserving capital. It seeks to achieve
high current yield this objective by investing in high quality money
while preserving market instruments that mature, or may be re-
capital. deemed or resold, in 13 months or less (25 months
or less in the case of U.S. Government securi-
ties). The fund invests only in such instruments
that are determined, in accordance with proce-
dures established by the Series' Board of Trust-
ees, to present minimal credit risks. The fund's
investments may include, but are not limited to,
commercial paper rated in the highest rating cat-
egory by Moody's Investors Service, Inc. and
Standard & Poor's Corporation, instruments is-
sued, guaranteed or insured by the U.S. Govern-
ment, its agencies or instrumentalities as to the
payment of principal and interest, and other se-
curities rated in the highest two categories by
either Moody's or S&P, provided the issuer has
commercial paper rated in the highest rating cat-
egory by Moody's or S&P. The fund also may enter
into repurchase agreements. See "Certain Securi-
ties and Investment Techniques" below. See also
the statement of additional information.
Although there is no guarantee that the fund's
investment objective will be achieved, invest-
ments in the Cash Management Fund should present
the least market risk of any of the funds because
it invests only in high-quality short-term debt
obligations. However, an investment in this fund
is subject to the risks of changes in market in-
terest rates and of the economy as a whole. Note
that the return on an investment in the Cash Man-
agement Fund should not be the same as the return
on an investment in a money market fund which is
available directly to the public, even where
gross yields are equivalent, due to the fees im-
posed at the Contract level. The Cash Management
Fund yield for the seven days ended November 30,
1995 was 5.28% on an annualized basis.
CERTAIN SECURITIES PORTFOLIO TURNOVER With respect to all funds,
AND INVESTMENT portfolio changes will be made without regard to
TECHNIQUES the length of time a particular investment may
have been held. Under certain market conditions,
The eight funds of the investment policies of the Asset Allocation
the Series invest Fund, the High-Yield Bond Fund, the Bond Fund,
in a wide variety and the U.S. Government/AAA-Rated Securities Fund
of securities which may result in higher portfolio turnover than
are subject to those of the other funds, although no fund's an-
varying degrees of nual portfolio turnover rate is expected to ex-
risk. ceed 100%. A 100% annual portfolio turnover rate
would occur, for example, if all the investments
in a fund's portfolio (exclusive of securities
with less than one year to maturity) were re-
placed in a period of one year. High portfolio
turnover involves correspondingly greater broker-
age commissions, to the extent such commissions
are payable, and other transaction costs, which
will be borne directly by the fund involved.
RISKS OF INVESTING IN STOCKS AND BONDS Those
funds that invest in stocks or securities con-
vertible into stocks are subject to various stock
market related risks. For example, these funds
are subject to the possibility that stock prices
in general will decline over short or even ex-
tended periods.
The market values of fixed-income securities such
as bonds tend to vary inversely with the level of
interest rates -- when interest rates rise, their
values generally will decline; when interest
rates decline, their values generally will rise.
Under normal market conditions longer term secu-
rities yield more than short term securities but
are subject to greater price fluctuations. Fluc-
tuations in the value of a fund's investments
will be reflected in the fund's net asset value
per share.
U.S. GOVERNMENT SECURITIES Securities guaranteed
by the U.S. Government include: (1) direct obli-
gations of the U.S. Treasury (such as Treasury
9
<PAGE>
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bills, notes and bonds) and (2) federal agency
obligations guaranteed as to principal and inter-
est by the U.S. Treasury (such as securities is-
sued by the Government National Mortgage Associa-
tion which are commonly known as "GNMA certifi-
cates," (described below) and Federal Housing Ad-
ministration debentures). In these securities,
the payment of principal and interest is uncondi-
tionally guaranteed by the U.S. Government, and
thus they are of the highest possible credit
quality. Such securities are subject to varia-
tions in market value due to fluctuations in in-
terest rates, but, if held to maturity, will be
paid in full.
Securities issued by U.S. Government instrumen-
talities and certain federal agencies are neither
direct obligations of, nor guaranteed by, the
U.S. Treasury. However, they generally involve
federal sponsorship in one way or another: 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 dis-
cretionary authority of the Treasury to purchase
certain obligations of the issuer; and others are
supported only by the credit of the issuing gov-
ernment agency or instrumentality. These agencies
and instrumentalities include, but are not lim-
ited to, Federal Land Banks, Farmers Home Admin-
istration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, and Federal Home Loan
Banks.
MORTGAGE-RELATED SECURITIES The funds may invest
in various types of mortgage-related securities
and the U.S. Government/AAA-Rated Secu- rities
Fund expects to invest substantially in these se-
curities. Mortgage- related securities may be is-
sued by governmental agencies (such as the GNMA
or the Federal Home Loan Mortgage Corporation
("FHLMC")), by the Federal National Mortgage As-
sociation ("FNMA"), which is a federally chart-
ered and privately-owned corporation, or by pri-
vate financial institutions such as commercial
banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or sepa-
rate trusts or affiliates of such institutions
established to issue these securities).
Most mortgage-related securities, including the
securities issued by GNMA, FHLMC and FNMA, are
so-called "pass-through" securities representing
interests in a pool of underlying mortgage loans,
on which the regular interest and principal pay-
ments (including any prepayments) are passed
through to the holder of the securities. Although
the mortgage loans in a pool will have stated ma-
turities of up to 30 years, due to both normal
principal repayment and prepayments, the average
effective maturities of these securities will
vary and will tend to fall when interest rates
fall and to rise when interest rates rise. Their
value also may change due to changes in the mar-
ket's perception of the credit worthiness of the
entity that issues or guarantees them. For addi-
tional information regarding mortgage-related se-
curities see the statement of additional informa-
tion.
MONEY MARKET INSTRUMENTS These are shorter-term
debt securitiesgenerally maturing in one year or
less which include (1) commercial paper (short-
term notes (up to 9 months) issued by
corporations or governmental bodies), (2)
commercial bank obligations (certificates of
deposit (interest-bearing time deposits),
bankers' acceptances (time drafts on a commercial
bank where the bank accepts an irrevocable
obligation to pay at maturity), and documented
discount notes (corporate promissory discount
notes accompanied by a commercial bank guarantee
to pay at maturity)), (3) corporate bonds and
notes (corporate obligations that mature, or that
may be redeemed, in one year or less), and (4)
savings association obligations (certificates of
deposit issued by savings banks or savings and
loan associations). Although certain floating or
variable rate obligations
10
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(securities which have a coupon rate that changes
at least annually and generally more frequently)
have maturities in excess of one year, they are
also considered to be short-term debt securities.
REPURCHASE AGREEMENTS The funds may enter into
repurchase agree- ments, under which a fund buys
a security and obtains a simultaneous commitment
from the seller to repurchase the security at a
specified time and price. The seller must main-
tain with the Series' custodian collateral equal
to at least 100% of the repurchase price includ-
ing accrued interest, as monitored daily by Capi-
tal Research and Management Company. If the
seller under the repurchase agreement defaults,
the fund may incur a loss if the value of the
collateral securing the repurchase agreement has
declined and may incur disposition costs in con-
nection with liquidating the collateral. If bank-
ruptcy proceedings are commenced with respect to
the seller, liquidation of the collateral by the
fund may be delayed or limited.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREE-
MENTS AND "ROLL" TRANSACTIONS The funds may pur-
chase securities on a delayed delivery or "when-
issued" basis and enter into firm commitment
agreements (transactions whereby the payment ob-
ligation and interest rate are fixed at the time
of the transaction but the settlement is de-
layed). These transactions may involve either
corporate or government securities. A fund as
purchaser assumes the risk of any decline in
value of the security beginning on the date of
the agreement or purchase. As a fund's aggregate
commitments under these transactions increase,
the opportunity for leverage similarly increases.
Should the market values of a fund's portfolio
securities decline while the fund is in this po-
sition, greater depreciation would likely occur
than were it not in such a position.
The Asset Allocation Fund, the High-Yield Bond
Fund, the Bond Fund and the U.S. Government/AAA-
Rated Securities Fund also may enter into "roll"
transactions, which consist of the sale of GNMA
certificates or other securities together with a
commitment (for which the fund typically receives
a fee) to purchase similar, but not identical se-
curities at a future date.
Each fund will segregate liquid assets such as
cash, U.S. Government securities or other appro-
priate high grade debt obligations in an amount
sufficient to meet its payment obligations in
these transactions.
PRIVATE PLACEMENTS The Growth Fund, the
International Fund, the Growth-Income Fund, the
Asset Allocation Fund, and the High-Yield Bond
Fund may invest in private placements. Private
placements may either be purchased from another
institutional investor that originally acquired
the securities in a private placement or directly
from the issuers of the securities. Generally,
securities acquired in private placements are
subject to contractual restrictions on resale and
may not be resold except pursuant to a registra-
tion statement under the Securities Act of 1933
or in reliance upon an exemption from the regis-
tration requirements under the Act (for example,
private placements sold pursuant to Rule 144A).
Accordingly, any such obligations will be deemed
illiquid unless it has been specifically deter-
mined to be liquid under procedures adopted by
the Series' board.
In determining whether these securities are
liquid, factors such as frequency and volume of
trading and the commitment of dealers to make
markets will be considered. Additionally, the li-
quidity of any particular security will depend on
such factors as the availability of "qualified"
institutional investors and the extent of in-
vestor interest in the security, which can change
from time to time.
11
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INVESTING AROUND THE WORLD The Growth Fund, the
International Fund, the Growth-Income Fund, the
Asset Allocation Fund, the High-Yield Bond Fund
and the Bond Fund may invest in the securities of
issuers domiciled outside the U.S. Of course, in-
vesting outside the U.S. involves special risks,
particularly in developing countries, caused by,
among other things: fluctuating currency values;
less stringent accounting, auditing, and finan-
cial reporting regulations and practices in some
countries; changing local and regional economic,
political, and social conditions; differing secu-
rities market structures; and various administra-
tive difficulties such as delays in clearing and
settling portfolio transactions or in receiving
payment of dividends. However, in the opinion of
Capital Research and Management Company, global
investing also can reduce certain portfolio risks
due to greater diversification opportunities.
Additional costs could be incurred in connection
with the funds' investment activities outside the
U.S. Brokerage commissions are generally higher
outside the U.S., and the funds will bear certain
expenses in connection with their currency
transactions. Furthermore, increased custodian
costs may be associated with the maintenance of
assets in certain jurisdictions.
In addition, the U.S. Government/AAA-Rated Secu-
rities Fund also may invest in the securities of
issuers domiciled outside the U.S.; however,
these securities must be dollar denominated and
highly liquid. Accordingly, while the risks men-
tioned above are still present, they are present
to a lesser extent.
CURRENCY TRANSACTIONS The Growth Fund, the
International Fund, the High-Yield Bond Fund and
the Bond Fund have the ability to purchase and
sell currencies to facilitate securities
transactions and to enter into forward currency
contracts to hedge against changes in currency
exchange rates. While entering into forward
transactions could minimize the risk of loss due
to a decline in the value of the hedged currency,
it could also limit any potential gain which
might result from an increase in the value of the
currency. The Growth Fund has no current
intention of entering into forward currency
contracts.
For additional information, see "Currency Trans-
actions" in the statement of additional informa-
tion.
MATURITY The maturity composition of the fixed-
income securities of the High-Yield Bond Fund and
the Bond Fund will be adjusted in response to
market conditions and expectations. There are no
restrictions on the maturity composition of the
portfolios, although it is anticipated that the
funds normally will be invested substantially in
intermediate-term (3 to 10 years to maturity) and
long-term (over 10 years to maturity) securities.
12
<PAGE>
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic in-
vestment philosophy of Capital Research and Man-
agement Company is to seek fundamental values at
reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund as-
sets. Under this system the portfolios of the
funds are divided into segments which are managed
by individual counselors. Each counselor decides
how their segment will be invested (within the
limits provided by each fund's objective(s) and
policies and by Capital Research and Management
Company's investment committee). In addition,
Capital Research and Management Company's re-
search professionals make investment decisions
with respect to a portion of each fund's portfo-
lio. The primary individual portfolio counselors
for the Series are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
YEARS OF EXPERIENCE AS
PORTFOLIO COUNSELOR (AND RESEARCH) WITH CAPITAL
PROFESSIONAL, IF RESEARCH AND
PORTFOLIO APPLICABLE) FOR THE FUNDS MANAGEMENT
COUNSELORS INDICATED COMPANY OR TOTAL
FOR THE SERIES PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James K. Dunton Senior Vice President of the Series. Growth-Income Fund--since the fund 34 34
Senior Vice President and Director, began operations in 1984
Capital Research and Management
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President of the Series. Asset Allocation Fund--since the fund 29 45
Senior Vice President and Director, began operations in 1989;
Capital Research and Management Bond Fund--since the fund began
Company operations in 1996;
U.S. Government Fund--since the fund
began operations in 1985
- ------------------------------------------------------------------------------------------------------------------------------------
Claudia P. Huntington Vice President of the Series. Growth-Income Fund--3 years (plus 5 years 19 21
Senior Vice President, as a research professional prior to becoming
Capital Research Company* a portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
John H. Smet Vice President of the Series. Bond Fund--since the fund began 13 15
Vice President, Capital Research and operations in 1996;
Management Company U.S. Government Fund--5 years
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy D. Armour Senior Vice President, and Director, Asset Allocation Fund--less than one year 13 13
Capital Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
David C. Barclay Executive Vice President, Capital High-Yield Bond Fund--4 years 9 16
Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Martial Chaillet Senior Vice President, Capital International Fund--4 years 25 25
Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Director, Growth Fund--3 years (plus 5 years as a 26 26
Capital Research and Management research professional prior to becoming a
Company portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President and Director, Growth Fund--10 years; 20 25
Capital Research and Management Growth-Income Fund--3 years
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Alwyn Heong Vice President, Capital International Fund--less than one year 4 4
Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Robert W. Lovelace Executive Vice President and Director, International Fund--3 years 12 12
Capital Research Company*
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Director, Growth-Income Fund--7 years (plus 21 25
Capital Research and Management 1 year as a research professional prior to
Company becoming a portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
Donald D. O'Neal Vice President, Capital Research and Growth Fund--6 years (plus 4 years as a 11 11
Management Company research professional prior to becoming a
portfolio counselor for the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
Victor M. Parachini Senior Vice President, Capital Asset Allocation Fund--less than one year 21 34
Research and Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President, Capital Bond Fund--since the fund began 19 30
Research and Management Company operations in 1996;
High-Yield Bond Fund--9 years
- ------------------------------------------------------------------------------------------------------------------------------------
Susan M. Tolson Vice President, Capital Research High-Yield Bond Fund--2 years 7 8
Company* (plus 2 years as a research professional prior
to becoming a portfolio counselor for the fund)
</TABLE>
* Company affiliated with Capital Research and Management Company.
13
<PAGE>
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DIVIDENDS, It is the Series' policy to distribute to the
DISTRIBUTIONS AND shareholders (the insurance company separate ac-
TAXES counts) all of its net investment income and cap-
ital gains realized during each fiscal year.
The Series
distributes to Each fund of the Series is subject to asset di-
shareholders all versification regulation prescribed by the U.S.
its income and Treasury Department under the Internal Revenue
capital gains Code (the "Code"). These regulations generally
realized during provide that, as of the end of each calendar
each fiscal year. quarter or within 30 days thereafter, no more
than 55% of the total assets of the fund 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 secu-
rities of the same issuer are considered a single
investment. Furthermore, each U.S. Government
agency or instrumentality is treated as a sepa-
rate issuer. There are also alternative diversi-
fication tests which may be satisfied by the
funds under the regulations. The Series intends
to comply with the diversification regulations.
If a fund should fail to comply with these regu-
lations, Contracts invested in that fund shall
not be treated as annuity, endowment or life in-
surance contracts under the Code.
See the applicable Contract prospectus for infor-
mation regarding the federal income tax treatment
of the Contracts and distributions to the sepa-
rate accounts.
FEDERAL TAXES Each fund of the Series intends to
operate as a "regulated investment company" under
the Internal Revenue Code. In any fiscal year in
which a fund so qualifies and distributes to
shareholders its net investment income and real-
ized capital gains, the fund itself is relieved
of federal income tax.
SERIES SERIES ORGANIZATION The Series, an open-end in-
ORGANIZATION AND vestment company, was organized as a Massachu-
MANAGEMENT setts business trust in 1983. The Series' Board
of Trustees supervises Series operations and per-
forms duties required by applicable state and
federal law. Members of the board who are not em-
ployed by Capital Research and Management Company
or its affiliates are paid for services rendered
to the Series as described in the statement of
additional information. They may elect to defer
all or a portion of these fees through a deferred
compensation plan in effect for the Series. The
Board of Trustees has approved the retention of
the companies listed below to provide certain
services to the Series.
INVESTMENT ADVISER Capital Research and Manage-
ment Company, a large and experienced investment
management organization founded in 1931, is the
investment adviser to the Series and other mutual
funds, including those in The American Funds
Group. Capital Research and Management Company is
located at 333 South Hope Street, Los Angeles, CA
90071 and 135 South State College Boulevard,
Brea, CA 92621. See the statement of additional
information under "Management" for a listing of
these funds.
Capital Research and Management Company manages
the investment portfolio and business affairs of
the Series and receives a monthly fee as compen-
sation for its services pursuant to an Investment
Advisory and Service Agreement. The fee, which is
accrued daily, is based on the net assets of each
fund as indicated below.
Growth Fund: 0.60% of the first $30 million, plus
0.50% greater than $30 million but not exceeding
$600 million, plus 0.45% greater than $600 mil-
lion but not exceeding $1.2 billion, plus 0.42%
greater than $1.2 billion but not exceeding $2.0
billion, plus 0.37% in excess of $2.0 billion;
14
<PAGE>
- --------------------------------------------------------------------------------
International Fund: 0.90% of the first $60 mil-
lion, plus 0.78% greater than $60 million but not
exceeding $600 million, plus 0.60% greater than
$600 million but not exceeding $1.2 billion, plus
0.48% greater than $1.2 billion but not exceeding
$2.0 billion, plus 0.465% in excess of $2.0 bil-
lion;
Growth-Income Fund: 0.60% of the first $30 mil-
lion, plus 0.50% greater than $30 million but not
exceeding $600 million, plus 0.45% greater than
$600 million but not exceeding $1.5 billion, plus
0.40% greater than $1.5 billion but not exceeding
$2.5 billion, plus 0.32% in excess of $2.5 bil-
lion;
Asset Allocation Fund: 0.60% of the first $30
million, plus 0.50% greater than $30 million but
not exceeding $600 million, plus 0.42% in excess
of $600 million;
High-Yield Bond Fund: 0.60% of the first $30 mil-
lion, plus 0.50% greater than $30 million but not
exceeding $600 million, plus 0.46% in excess of
$600 million;
Bond Fund: 0.60% of the first $30 million, plus
0.50% in excess of $30 million;
U.S. Government/AAA-Rated Securities Fund: 0.60%
of the first $30 million, plus 0.50% greater than
$30 million but not exceeding $600 million, plus
0.40% in excess of $600 million;
Cash Management Fund: 0.50% of the first $100
million, plus 0.42% greater than $100 million but
not exceeding $400 million, plus 0.38% in excess
of $400 million.
The compensation paid to the Investment Adviser
for the most recent fiscal year as a percentage
of average net assets amounted to the following:
Growth Fund -- .44%; International Fund -- .65%;
Growth-Income Fund -- .41%; Asset Allocation
Fund -- .49%; High-Yield Bond Fund -- .51%; U.S.
Government/AAA-Rated Securities Fund -- .51%; and
Cash Management Fund -- .46%.
Capital Research and Management Company is a
wholly owned subsidiary of the The Capital Group
Companies, Inc. (formerly "The Capital Group,
Inc."), 333 South Hope Street, Los Angeles, CA
90071. The research activities of Capital Re-
search and Management Company are conducted by
affiliated companies which have offices in Los
Angeles, San Francisco, New York, Washington,
D.C., London, Geneva, Singapore, Hong Kong and
Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal in-
vesting policy that is consistent with the recom-
mendations contained in the report dated May 9,
1994 issued by the Investment Company Institute's
Advisory Group on Personal Investing. (See the
statement of additional information.) This policy
has been incorporated into the Series' "code of
ethics" which is available from the Series' Sec-
retary upon request.
PORTFOLIO TRANSACTIONS Order for the Series'
portfolio securities transac- tions are placed by
Capital Research and Management Company which
strives to obtain the best available prices, tak-
ing into account the costs and quality of execu-
tions. There is no agreement or commitment to
place orders with any broker-dealer. Fixed-income
securities are generally traded on a "net" basis
with a dealer acting as principal for its own ac-
count without a stated commission, although the
price of the security usually includes a profit
to the dealer. In underwritten offerings, securi-
ties are usually purchased at a fixed price which
includes an amount of compensation to the under-
writer, generally referred to as the underwrit-
er's concession or discount. On occasion, securi-
ties may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
15
<PAGE>
- --------------------------------------------------------------------------------
Subject to the above policy, when two or more
brokers are in a position to offer comparable
prices and executions, preference may be given to
brokers that have sold Contracts or have provided
investment research, statistical and other re-
lated services for the benefit of the Series
and/or of other funds served by Capital Research
and Management Company.
SHAREHOLDER VOTING RIGHTS All shares of the Se-
ries have equal voting rights and are entitled to
one vote per share with proportional voting for
fractional shares. There will not usually be a
shareholder meeting in any year, except, for ex-
ample, when the election of the board is required
to be acted upon by shareholders under the In-
vestment Company Act of 1940.
In matters which only affect a particular fund,
the matter shall have been effectively acted upon
by a majority vote of that fund even though: (1)
the matter has not been approved by a majority
vote of any other fund; or (2) the matter has not
been approved by a majority vote of the Series.
The insurance company separate accounts, as the
shareholders of the Series, have the right to
vote Series shares at any meeting of sharehold-
ers. However, the Contracts provide that the sep-
arate accounts will vote Series shares in accor-
dance with instructions received from owners of
the Contracts. See the applicable Contract pro-
spectus for information regarding Contract own-
ers' voting rights. Since the funds use a com-
bined prospectus, each fund may be liable for
misstatements, inaccuracies, or incomplete dis-
closure concerning any other fund contained in
this prospectus.
PURCHASES AND Shares of the Series are currently offered only
REDEMPTIONS to insurance company separate accounts which fund
OF SHARES the Contracts. All such shares may be purchased
or redeemed by the separate accounts at net asset
value, without any sales or redemption charges.
Such purchases and redemptions are made subse-
quent to corresponding purchases and redemptions
of units of the separate accounts without delay.
Except in extraordinary circumstances and as per-
missible under the 1940 Act, the redemption pro-
ceeds will be paid on or before the seventh day
following the request for redemption.
PRICE OF SHARES The net asset value per share is
calculated once daily at the close of trading
(currently 4:00 p.m., New York time) on each day
the New York Stock Exchange is open. The current
value of each fund's total assets, less all lia-
bilities, is divided by the total number of
shares outstanding (excluding treasury shares),
and the result, rounded to the nearer cent, is
the net asset value per share. For a more com-
plete description of the procedures involved in
valuing assets, see the statement of additional
information.
16
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. rates the long-term debt securities issued
by various entities in categories ranging from "Aaa" to "C," according to
quality as described below.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a 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 -- High quality by all standards. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Generally lack characteristics of the desirable investment; assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Standard & Poor's Corporation rates the long-term debt securities issued by
various entities in categories ranging from "AAA" to "D," according to quality
as described below.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
This prospectus has been printed on recycled
[LOGO RECYCLED] paper that meets the guidelines of the United
States Environmental Protection Agency
17
