AMERICAN VARIABLE INSURANCE SERIES
July 30, 1997 Supplement to Prospectus
dated April 1, 1997
The third paragraph under "Investment Objectives and Policies of the Funds -
Growth-Income Fund" on page 5 of the prospectus has been amended to read as
follows:
Up to 10% of the fund's assets may be invested in securities of issuers
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index (a broad measure of the U.S. stock market). These securities
may be denominated in currencies other than the U.S. dollar. See "Securities
and Investment Techniques-Investing in Various Countries" below.
The third paragraph under "Investment Objectives and Policies of the Funds -
Asset Allocation Fund" on page 6 of the prospectus has been amended to read as
follows:
Up to 10% of the fund's assets may be invested in equity-type securities of
issuers domiciled outside the U.S. and not included in the Standard & Poor's
500 Composite Index (a broad measure of the U.S. stock market). Up to 5% of
assets may be invested in debt securities of issuers domiciled outside the U.S.
These securities may be denominated in currencies other than the U.S. dollar.
See "Securities and Investment Techniques-Investing in Various Countries"
below.
The fifth paragraph under "Investment Objectives and Policies of the Funds -
Asset Allocation Fund" on page 6 of the prospectus relating to concentrating
non-U.S. fixed income securities in government issuers and currency
transactions has been deleted.
The paragraphs under "Securities and Investment Techniques - Mortgage-Related
Securities" on page 10 of the prospectus have been replaced with the following:
PASS-THROUGH SECURITIES
The funds may invest in various debt obligations backed by a pool of mortgages
or other assets including loans on single family residences, home equity loans,
mortgages on commercial buildings, credit card receivables, and leases on
airplanes or other equipment. Principal and interest payments made on the
underlying asset pools backing these obligations are typically passed through
to investors. Mortgage-backed securities permit borrowers to prepay their
underlying mortgages. Prepayments can alter the effective maturity of these
instruments. Pass-through securities may have either fixed or adjustable
coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These
securities and the underlying mortgages are not guaranteed by government
agencies. In addition, these securities generally are structured with one or
more types of credit enhancement.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed-through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change the impact of
changing prepayment rates on these securities' effective maturities is
magnified.
"Commercial mortgage-backed securities" are backed by commercial property, such
as hotels, office buildings, retail stores, hospitals, and other commercial
buildings. These securities may have a lower prepayment risk than other
mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which
can change the bonds' effective maturities.
The first sentence in the first paragraph under "Securities and Investment
Techniques - Investing in Various Countries" on page 12 of the prospectus has
been amended to read as follows:
The Global Growth Fund, the Growth Fund, the Growth-Income Fund, the
International Fund, the Asset Allocation Fund, the Bond Fund and the High-Yield
Bond Fund may invest in securities of issuers domiciled outside the U.S. which
may be denominated in currencies other than the U.S. dollar.
The first sentence of the third paragraph under "Securities and Investment
Techniques - Investing in Various Countries" on page 12 of the prospectus that
currently states that the Growth-Income Fund and Asset Allocation Fund may
invest only in U.S. dollar denominated securities has been deleted.
The second sentence in the section titled "Securities and Investment Techniques
- - Currency Transactions" on page 12 of the prospectus has been amended to read
as follows:
The Asset Allocation Fund and the Growth-Income Fund may purchase and sell
currencies to facilitate transactions in securities denominated in currencies
other than the U.S. dollar, but they have no current intention of entering into
forward currency contracts.
Please keep this supplement with your copy of the prospectus.
